Thursday, January 21, 2010

How to make an effective and realistic personal budget

Your personal budget works as a tool to help you allocate your income between your present day to day expenses, loan obligations and savings for use in future. Rightly adjusted personal budgets help you keep on track financially and offer stability when unforeseen expenses or loss of income take place. By keeping some fundamental guidelines in your mind, you can formulate an easy to understand personal budget that helps achieve your financial objectives. Given below are some of those guidelines:

Objectives and priorities

Prior to devising a personal budget, make a list of your objectives and priorities. Include savings, college education, retirement and holiday trips. While making your personal budget, you must remain concentrated on your financial objectives to help you distribute your money.

Fixed income

You must design your budget on the basis of your fixed income only. You mustn’t incorporate funds like lawsuit settlement, tax rebates or undecided child support payments in your personal budget. You can use windfall profits to pay off your debts sooner or buy coveted but needless items.


You must prepare your budget with flexibility. A savings account must be included at all times that can be used for budgetary adjustments. For instance, the budget should enable you to raise your housing payment if your insurance premiums or taxes go up. Similarly, you must understand where to distribute extra funds when you get a pay hike.


As stated by Richard Jenkins on MSN money, you must restrict all your fixed expenditures to 60% of your income. Fixed expenditures must incorporate your taxes, bills, housing expenses, insurance, donations, groceries and clothing. Ten percent of your earnings should be directed towards your retirement savings, 10% towards an emergency fund for unforeseen expenses, 10% towards a savings plan (long-term) and 10% towards a fund for leisure and other expenses.

Monitoring your budget

Once your budget is done, monitor all your expenses to follow your budget sincerely. Monitor even minor expenses such as coffee jaunts, snacks bills and iced tea bills. Minor expenses can accumulate soon and can make you lose control over your finances. Modify your budget based on monitoring of your expenses. If you regularly have to spend a higher amount than you planned in a particular area, carry out modifications so that you don’t exhaust your funds for your fixed expenses.

No comments: