Producing a Personal Budget

Understanding a Personal Budget

A personal budget is a financial plan which balances your income against your spending. It is a key tool to manage personal finances.
The main objective of a personal budget is to ensure that your income covers your expenditures without going into debt.
It provides you with a clear picture of your financial situation, enabling you to plan your spending, save money, and avoid overspending.

A personal budget includes all sources of your income, such as wages from jobs, income from investments, and any other sources of money.
It also includes your expenditures, which can be split into two categories: fixed and variable expenses.
Fixed expenses are recurring costs that don’t fluctuate in amount, like rent or mortgage payments, utility bills, and insurance premiums.
Variable expenses are costs that can change from month to month, such as groceries, entertainment, and personal care items.

Start by determining your income for a specific period of time, usually a month.
Then, list your expenditures: first the fixed ones and then the variable ones. Be honest about your spending to ensure accuracy.
Substract your total expenditures from your total income to calculate the remaining amount. This shows whether you have a surplus of cash (which could be saved or invested) or if you need to cut back on spending.

Regularly reviewing the personal budget is crucial. It allows you to check if you’re staying within your budgeted amounts, adjust them if necessary, and track your progress towards financial goals.
It’s also important to update your budget if your circumstances change - for example, upon receiving a raise, losing your job, or moving house. Regular updates ensure your budget stays relevant and realistic.

Always prioritise necessary expenses first (like rent, bills, and food) before adding discretionary spending.
Try to save a portion of your income each month. Consider this as another necessary expense in your budget.
Use tools that can help you stay organised and keep track of your budget, such as a spreadsheet or a budgeting app.
It’s okay to make adjustments to your budget. It’s not meant to be a rigid plan but a flexible tool that changes as your life and financial situation changes.