Personal Finance Budgeting in 4 Steps

Learning personal finance budgeting is not something that comes easy for most people.  The process of trying to monitor and mange your money can be difficult.  We all have our own ways of making it through month to month, but sometimes that way is not working and there comes a time to get down to real personal finance budgeting.

Personal finance budgeting involves tracking and maintaining a system of how you spend your money.  The goal is to make sure all of the necessities are taken care of, debt is paid down and money is saved without ending up in a financial crisis. 

With good personal finance budgeting you will be able to handle your finances with ease.  You should never end up in a financial crisis where bills do not get paid or an emergency expense causes financial anxiety when you have a good budget set up.

The following are four steps you can take to set up and maintain your personal finance budgeting.  Follow these steps and you should be able to start living with a budget that works for you and your personal financial situation.

Step One: Set goals

To get started with personal finance budgeting you need to set goals.  You should have in mind what you seek to accomplish by setting up personal finance budgeting.

Your goals should include paying debts, saving money and anything else that you think is important to your financial future.  Make sure your goals are precise.  You want to make goals that are specific so you can easily design a plan around them.

Your goals may look something like this:

- Get all bills paid so they are current.
- Pay off all credit card debt.
- Save money for next year's vacation.
- Save money for college fund.

Step Two: Develop a plan

You should also consider what you need to do to meet those goals.  For the list above here are some things you may plan out:

- Get all bills paid so they are current: Gather last bill for each; calculate total amount overdue on all; call companies to set up repayment plan.
- Pay off all credit card debt: Gather all information on debt; calculate total amount of debt; decide how to repay; get help if needed or contact companies for repayment options.
- Save money for next year's vacation: Figure total amount needed; figure amount that needs to be saved each week to reach goal amount; set up special savings account
- Save money for college fund: Set up a special account; check into any plans at work; look into special savings plans available; figure how much can go into fund each month

Planning out each goal will help you when you go to set up your budget.  You will also need to categorize each into a timeline.  For example, saving for college is a long term goal, where getting bills paid so they are current is something that needs done right now.  Categorizing them will help you when you set up your budget if you can not afford to put money towards all the goals at once.

Step Three: Figure expenses and income

This step of the process involves figuring your average monthly income and average monthly expenses.  You will need pay stubs and bills for all your expenses.

You want to start with figuring your income.  For most people this is simple, but if your income varies you may need to average it out and use that figure.  It is always better to error on the side of recording less income than you actually make instead of over estimating.

For your expenses you may need to average some and others will be the same every month.  You want to start with your major expenses like housing costs, utilities, car payments and other expenses that you must pay.  Then you can start figuring extra expenses like entertainment.

You should develop a list with your income at the top and the expenses listed below.  This is the beginning of your budget.

Step Four:  Develop your budget

This will be much easier if you use a personal finance budgeting software program.  You need to take all the information you have about your expenses, income and goals. 

List your income.  This is the amount of money you have to spend each month.

List your expenses.  These are the things you must pay every month and can not go without.  Do not forget things like gasoline and food.

List your goals.  These are the goals you developed.  You will be using the information you created about how much you need to put towards each goal every month.

Lastly list extra expenses.  This includes anything that you do not have to spend money on, but enjoy spending money on.

You need to add up all the expenses, goals and extra expenses.  If this amount exceeds your income then you will have to work with your budget to figure where you can spend less.  You will mostly be adjusting your goals and extra expenses.  You should start with extra expenses and cut anything you can and then reduce the amount you are saving or spending for your goal expenses.

In the end you should come up with a workable budget that you can use to get your personal finances in good shape.