How to Create and Stick to a Personal Budget

All of us-- individuals, corporations, organizations, and governments-- use money. We all need to have an income, that is, money that we earn or acquire in some way, and we all have expenses, that is, items and services that we must pay for. In an ideal world, the income would always be greater than the expenses. Unfortunately, lots of people and organizations, including our own U.S. government, spend more on expenses than they bring in as income. By developing a personal budget, you can learn to reconcile your income and expenses, and be free of the stress that comes with living beyond your means.

A good way to create a personal budget is by looking at your records for the last year. You need to know exactly what you've been spending money on. Some expenses, like the mortgage, are the same each month and are due at the same time. These expenses are easy to fit into your budget, and come as no surprise to anyone. It's the incidental expenses that are probably causing you to live beyond your means and never have enough money to finish the month. Sifting through the prior year's records will take awhile, but you'll discover places you were wasting cash that you didn't even know about. As you look through your check book ledger and credit card bills, categorize every single check you wrote or charge you made. Here are some suggestions for headings:

1. Mortgage or rent
2. Phone, including cell and landline
3. Electricity, water, and propane for the home
4. Gasoline, oil, car washes, and service
5. Insurance, including health, life, auto, and home
6. Food, including groceries and restaurant meals
7. Purchases for the home like soap and light bulbs
8. Subscriptions to magazines, newspapers, and cable TV
9. Doctor and dentist visits
10. Personal grooming like haircuts and color
11. Pet care, food, boarding, and vet costs
12. Clothing for adults and children
13. Savings
14. Christmas or holiday expenses
15. Charitable donations

Each of the items in the above list can be classified as a predictable, or recurring, expense. Next, you need to note all the expenditures from the past year that you hadn't predicted. Once you gain an idea of how money might have slipped through your fingers, you can incorporate such unplanned, but inevitable expenses into your personal budget. Headings might include the following:

1. Gifts for weddings, new babies, birthdays, or going away presents
2. Fees for special events that come up at school, like field trips
3. Emergencies like illness or dental problems
4. Vacations and trips
5. Impulse buys

Once you add up your incidental expenses, you need to get tough on yourself and your family. Have a meeting and stress how important it is to agree on a personal budget. If everyone in the family understands that living within your means will ultimately result in financial freedom, all members will be more willing to use discipline. It's important that the incidental expenses are kept under control. Maybe you allow yourself a certain dollar amount, say $200 per month, to be available for unplanned purchases. Or you could figure a percentage of income that will be dedicated to incidentals. Again, this is why it's useful to study every cent you spent in the past year. If you have an idea of your habits, you can decide which expenses you would like to keep, and which ones you can happily live without.

However you decide to proceed from this point, remember that it is possible and desirable to live within a personal budget. You will free yourself from the stress that comes from never having enough money, and you will set a good example for your children. You'll be able to pay the debts you have. Best of all, you will feel in control of your own personal finances. That will be the best payoff of all.