The best way to get what you want in life is to put a plan in place. Think of your personal budget as that plan, accounting for the money you need to spend each month while also giving you a little wiggle room for that new app you just have to download. A good budget outlines your priorities, but it also helps you set some money aside so that you can achieve your long-term financial goals. The amount of money you choose to spend in a given area is a personal decision, but the basic elements of a personal budget are the same.
Start With Your Income
The key element to any budget is income. Without a regular source of funds, there is no sustainable way to pay bills and make purchases. For budget planning and management purposes, your net income, or take-home pay, is the only income that's important because it's the only money coming in that is spendable. If you have other sources of regular income, add those to your budget as well, but if you have sporadic income or bonuses, you likely can't count on those often enough to include them in your monthly accounting.
Move on to Fixed Expenses
Fixed expenses are bills that stay the same from month to month. Your rent, car payments and car insurance bills are usually a set amount over a set period of time. This predictability makes fixed expenses easy to account for in planning and managing your budget.
Consider Flexible Expenses Next
Flexible, or variable, expenses fluctuate from one billing or budget period to another. For example, the electric bill may be $100 one month and $150 the next due to colder temperatures that caused an increased need for heat. You may also spend $25 on gasoline one week but need $35 the next because you had to travel for a doctor appointment. These flexible expenses can be estimated and controlled with good budget habits.
Don't Forget Unplanned Expenses
Unplanned expenses are a basic element of any good budget. According to financial author Dave Ramsey, emergencies always arise. By having funds set aside for dealing with unexpected events such as a flat tire or a broken water heater, you won't have to go into debt or completely ruin your budget to deal with the surprise expense.
Increase Your General Savings
All the experts tell you to pay yourself first, and that's where savings come in. Set aside a minimum of 10 percent of your income before paying any other bills and you'll quickly find yourself with a growing nest egg. Hold on to your savings for the long term to fund retirement, or let it build for short-term goals such as taking a vacation or buying a new car.
- Dave Ramsey: A Quick Guide to Your Emergency Fund
- TIAA: How much of my income should I save every month?
- Quicken: The Most Recommended Household Budget Items
- Credit.org: Essential Household Budgeting Tips and Categories
- Federal Trade Commission. "Making a Budget - What It Is." Accessed June 6, 2020.
- Consumer Financial Protection Bureau. "Financial Terms Glossary - Fixed Expenses." Accessed June 6, 2020.
- Consumer Financial Protection Bureau. "Financial Terms Glossary - Variable Expenses." Accessed June 6, 2020.
Kathy Burns-Millyard has been a professional writer since 1997. Originally specializing in business, technology, environment and health topics, Burns now focuses on home, garden and hobby interest articles. Her garden work has appeared on GardenGuides.com and other publications. She enjoys practicing Permaculture in her home garden near Tucson, Ariz.