How to Budget Personal Finances
How to budget personal finances contains three major parts: Acknowledge your incoming funds; review your outgoing funds; adjust your outgoing funds. Let's review each of these parts individually.
- Acknowledge Your Incoming Funds Every budget starts with your income. Look at your actual income—not your salary or gross income—but your actual income after social security and taxes. Write this figure down.
- Review Your Outgoing Funds The funds that you spend each month on bills, savings and entertainment should all be added up. Make sure you count every single expense you have, no matter how small or insignificant you think it is.
- Adjust Your Outgoing Funds If your outgoing funds are less than your incoming funds—congratulations! You don't have much more to do. Just make sure you are saving at least five percent of your income for emergencies and maxing out your annual IRA contribution limit and any employer-sponsored retirement funds.
If your outgoing funds exceed your income, then you need to adjust the amount of money you are spending each month. You need to reduce your entertainment expenses, stop eating out as much, reduce the amount of gourmet coffee you drink or clothes you buy. You may also need to reduce the bills you have by accepting fewer cable television channels and canceling your online gaming accounts. Your goal should be to reduce your expenses enough that you can afford to pay all your bills and save at least five percent of your income for emergencies while maxing out your annual IRA contribution limit and any employer-sponsored retirement funds.