Creating a personal budget allows you to take control of what you earn and what you spend to heal your finances and achieve financial freedom. It is also useful if you are planning to leap from a regular job to doing it on your own, or if you are an experienced independent professional looking to organize your finances.
Well, let’s get to it. Here we will tell you what it is, what types there are, why you should have one, tools you can use to create it, and how to do it step by step.
Personal budget: what it is and what types there are
A personal budget is a financial plan that allows you to know what income you currently have and what your expenses are to have control over your finances. It can be a document or a spreadsheet in which you will write down the inflows and outflows of money that you will have during a certain time.
There are different types of personal budgets that you can create: monthly, weekly, annually, or as frequently as you consider necessary.
Why do you need to make one?
Making a budget helps you better organize your money and forget about the anguish of reaching the end of the fortnight with your account in the red. Furthermore, in the medium or long term, you will have the possibility of creating your own savings plan to carry out any project you have in mind.
This is especially relevant if you are a freelancer since having a personal monthly, or annual, budget will prevent your economy from being destabilized in times of little work.
Have we not convinced you yet? Perhaps these benefits will make you think twice about the usefulness of starting to plan your expenses.
You will not lose sight of your goals
A budget is essential to focus on the goals you have and work to achieve them. If you don’t have it, it’s easier for you to fall into the temptation of buying things that catch your attention (and that you may not need). So, how can you save to make the projects or dreams you have in mind come true?
It can help you save to invest in your professional development
To remain current and competitive, you need to improve your skills all the time and stay in a state of continuous learning; So saving can help you invest in courses or training that will give you a good advantage in the job market.
You will stop spending money you don’t have
If you take good care of your finances, you will know exactly how much money you are earning, how much you need for fixed expenses, how much you can spend on other non-essential things (even if you pay for them on credit), and what you need to save.
You will be able to face any emergency
Including an emergency fund in your planning (to cover between three and six months of your basic expenses) will help you a lot in the event of any unforeseen event. This money will prevent you from going into debt and destabilizing your finances.
It will help you identify unnecessary expenses
Having the habit of managing your expenses well is a very useful exercise to realize if your money is being spent on things that are not essential. Perhaps, you don’t need to subscribe to all the streaming services, or you may find that it is better to prepare your coffee at home and take it with you instead of buying it every day at a coffee shop.
You will sleep much better
How many times have you stayed up all night trying to settle your debts with your pillow? Making a financial plan will help you sleep more and better. When you have this discipline, you will no longer have to sacrifice your rest and count sheep to fall asleep.
The personal budget is your ally to rethink these unnecessary spending habits and focus on your financial goals.
Tools you can use to create your budget
Choosing the right tool can easily make or break your intention to create and follow a spending plan. From the simplest methods to some mobile applications, here are 5 free options that will help you take the first step and get your finances on the right track:
Paper and pencil
A classic that never fails. Creating your budget can be as simple as taking a notebook and starting to write a list of your income and expenses, calculating the amounts you have left for savings, an emergency fund, and that’s it.
Whether you prefer to have it saved on your computer or in the cloud, spreadsheets (Excel or Google Drive) are also a great option for creating budgets. The option of hosting it in the cloud can be very useful for you to make family budgets or with other people who are involved in a specific project you have.
This application has a very good reputation in terms of digital security and data privacy. In 2015 it was recognized by Google as the best application for finances. Fintonic allows you to closely monitor your income and expenses, keeping a simultaneous record with your bank; as well as establish your savings goals. This will give you clarity about the commissions you are paying, duplication of charges, movements of your cards, and the loans you have in force.
If, on the other hand, you do not want the application to have access to your bank accounts, Money Manager may be more useful to you. In this app, you will find an intuitive and simple design, with different categories to analyze your finances, make decisions about your money, and create a personal budget, whether monthly, annually, or as frequently as you want.
To keep more timely control of your budget, you can use Wallet, an application that allows you to record your finances day by day. It has the possibility of grouping expenses into categories and, with this information, generates graphs to show you the evolution of your balance and comparisons by category. It even makes a forecast for your financial plan based on your scheduled payments and spending habits.
How to make your budget in 5 steps
The time has come to move from theory to practice. Below we share six steps that are a good starting point for you to start creating your budget:
- Make sure you understand the main concepts: income, fixed expenses, variable expenses, debts, savings, etc.
- Calculate how much your total income and expenses are (adding fixed, variable, and debt payments).
- Allocate an extra amount for your emergency fund.
- Establish a percentage that can be converted into savings.
- Stick to what you have planned and closely monitor your expenses in all honesty.
Take control of your money and achieve everything you set out to do
Creating a personal budget is just the first step toward financial stability; however, it is essential that you encourage yourself to give it and that you are consistent in following it. You can thank us later, because having made this decision will help you achieve bigger goals. You don’t need to invest more than time to do it and it will generate many benefits in the medium and long term.
Do you want to take control of your money and stop suffering because you don’t have enough? It’s time to start budgeting!