How do I create a personal budget?

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Answered by: Anne, An Expert in the Managing Money Category
How many times have you tried to create a personal budget only to overspend within the first month? If you’re like most people you’ve done this a lot! Know you are not alone and you are not a failure. Standard budgeting forms don’t work for the simple reason of real life timing. We don’t receive all our income on the first of the month and pay bills on the second. We don’t spend all our grocery money in one trip to the store. Before you create a personal budget we need to establish a starting point by calculating income and expenses.



Begin by listing all monthly income. You need to know how much money is coming in before you can send it out. For entrepreneurs and other non-W-2 business people calculate the average income over three months to give you an approximate monthly income. If you have an approximate date or dates of when you are paid make note of those dates.

Next list all monthly bills and due dates. Be honest. You want to know exactly what is going out on exactly which days of the month. Include rent or mortgage, utilities, landline, cell phone, cable, internet, insurance for health and/or auto.



Calculate gas expense or use account statements to figure monthly or average monthly spending on gas. Gas prices can change which is why we recommend an average cost over 3-6 months.

Calculate monthly spending on groceries. Include incidentals like cigarettes, candy and gum. We want to create a personal budget that includes every little expense.

Calculate monthly spending on dining out. Most people are shocked by this number. Author David Bach calls it The Latte Effect. Spending $4 for a Starbucks coffee everyday equals $120 per month or $1440 per year! Imagine what you could save or buy with that money. Just taking your lunch to work can save you thousands of dollars.

Using the numbers you have calculated we are going to create a personal budget.

Write on a piece of paper or in Excel the balance of your checking account right now. Don’t forget transactions that haven’t cleared like checks that are outstanding and debit purchases that haven’t cleared.

Determine your next pay day.

Subtract the amount needed for food and gas from now until payday. Make these separate items on your list.

Subtract the bills due between now and your next payday.

You probably have money left which means you can pay an additional bill early!

Next column enter the amount of your check or approximate income from clients.

Repeat the process and enter bills and due dates...payday...and so on.

The only tricky part - and the best part of this new budget - is to carry the balance from week to week. Maybe you have $100 left; carry that to the next column and add your payday amount then bills, etc..

Pay yourself weekly in CASH for food, gas and incidentals like coffee or mani/pedi. Once the money is gone you have to wait until the following week. It’s the toughest part for most people to learn and reaps the biggest rewards to your personal bottom line!

We hope we helped you create a personal budget for now and for your future!

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