A Personal Budget
Here we are focusing on the most important tool you should have in your financial health toolbox- a personal budget! When and Why Should I Create a Personal Budget?
A personal budget should be created on a monthly or annual basis, a personal budget is an important financial tool because it can help you:
• Plan for expenses
• Reduce or eliminate expenses
• Save for future goals
• Spend wisely
• Plan for emergencies
• Prioritize spending and saving
HOW DO I CREATE A PERSONAL BUDGET?
There are numerous approaches to creating a personal budget, but all involve making projections for income and expenses. The income and expense categories you include in your budget will depend on your situation and can change over time.
COMMON INCOME CATEGORIES INCLUDE:
• alimony/child support
• disability benefits
• interest and dividends
• rents and royalties
• retirement income
• Social Security
GENERAL EXPENSE CATEGORIES INCLUDE:
• debt payments – car loan, student loan, credit card
• education – tuition, daycare, books, supplies
• entertainment and recreation – sports, hobbies,
movies, DVDs, concerts, Netflix
• food – groceries, dining out
• giving – birthdays, holidays, charitable contributions
• housing – mortgage or rent, maintenance
• insurance – health, home/renters, auto, life
• medical/healthcare – doctors, dentist, prescription
medications, other known expenses
• personal – clothing, hair care, gym, professional
• savings – retirement, education, emergency fund,
specific goals (i.e. vacation)
• special occasions – weddings, anniversaries,
graduation, Bar/Bat Mitzvah
• transportation – gas, taxis, subway, tolls, parking
• utilities – phone, electric, water, gas, cell, cable, internet
Once you’ve made the appropriate projections, subtract your expenses from your income. If you have money left over, you have a surplus and you can decide how to spend, save or invest the money. If your expenses exceed your income, however, you will have to adjust your budget by increasing your income (adding more hours at work or picking up a second job) or by reducing your expenses.
Calculate your personal budget on a regular basis. This may seem obvious to some, but people’s failure to lay out and stick to a detailed budget is the root cause of excessive spending and overwhelming debt. For more information on financial health, see the MBS website at www.asc-mbs.com.