The path to financial security starts with a personal budget. A budget can take many forms, and have varying levels of complexity.
The budget that is right for you is one that allows flexibility while displaying a virtual road map of your personal financial goals. Here are several tips that will help you create and adjust your budget to your own needs:
When you initially decide to create a budget, spend the first (partial) month doing two things: tracking all expenses carefully, right down to the penny, and deciding what your financial goals are.
Carry a small notebook in your pocket and keep a close accounting for every dollar spent.
For now, forget about what your own "projections" are; quantify income and expenses, with real numbers, and fill in the first month with "actual" figures.
One of the most important personal budgeting tips is to set your financial goals!
Set up an emergency fund, that should be your first priority. The secure feeling that arises from having 3-5 months of after-tax money immediately available makes you better able to make financial decisions on risk, asset allocation, and long term planning.
Fund that account first, before you turn to other investments.
Next, look at your long term goals and start building them into your budget. It isn't easy, but it's important to see how those goals fit with your current spending habits.
Spreadsheets are a favorite of everyone, but you don't have to start with a blank slate.
There are many free budget templates that you can use.
This way, you don't waste too much time creating your own column format and writing formulas. If you already own a financial planning software package, use the budgeting function.
The crucial point is not to get too focused on the creation of the budget, instead, focus on using it. After all, it's more important to execute your financial plan.
Tinker with your budget constantly. Remember, your budget has two columns; "budget" and "actual".
Too many people ignore the "actual" column, but this is a mistake. It is critical for you to evaluate where the money went in a given month, and to force yourself to face that number.
Budgets should not be an imaginary tool, and the tracking of actual expenses (and income) is where lots of value is added.
Print your budget out and put it in the kitchen, next to the computer, or anywhere that will help remind you of your financial goals and constraints. When you get an idea, write all over it. This is your document.
Imagine unforeseen expenses and look for ways to cut spending in certain months. For example, you might benefit from turning the gas line off during the summer; or traveling by train could save money on your vacation. It's your budget; get creative!