We should all be budgeting our money more carefully. By building a budget, you’re taking better care of your finances and making sure that you’re prepared for anything that comes your way.
Of course, budgeting often isn’t taught in schools, so it’s entirely possible you’ve grown up without the knowledge to make a great budget (no shame – we’ve spoken to many people who have experienced this).
If you’re looking for the know-how to help you create your first budget, or even if you’re looking to optimize your existing budget, you’ve come to the right place. Here’s how to build the perfect personal finance budget.
Top 8 Ways To Build Personal Finance Budget
1. Be honest with yourself
First and foremost, a great budget requires honesty. It’s important to incorporate every outgoing payment and every morsel of income you have, because even the slightest miscalculation could have serious knock-on effects on a budget later down the line.
If you’re dishonest with yourself, then it’s only yourself you’re fooling; you won’t be any better off in terms of money, and your budget will be tighter to balance as well.
Make sure you’re not overlooking anything to make yourself feel better about your finances (again, no shame – we’ve all done it).
2. Sum up your expenses
To build an effective budget, you’ll need to know every outgoing expense you’ve currently got. Start with your bills – your energy costs, internet, phone, and everything else you need to pay on a monthly basis.
After that, consider extra repayments and expenses; if you’ve taken out a loan from a site like Loans2Go and you’re paying it back on the regular, for example, then that should be added to your budget.
One-off expenses should be considered as well, but naturally, you can’t figure them into an ongoing budget, so deal with them as and when you know about them.
3. Calculate your income
After you’ve laid out all of your expenses and calculated how much you’re paying out each month, it’s time to think about your income. Again, you need to be holistic here.
If you’re living with a partner and paying bills jointly, then you need to incorporate both of your incomes into the budget to have a realistic understanding of how much money you have each month.
You should also add any benefits or recurring payments you’re receiving to your budget. If you have an irregular income, build your budget as if every month is the worst month you’ve ever had. This will help you to prepare for the worst and leave extra left over, which will be a pleasant surprise for you.
4. Obey the 50-30-20 rule
You might have heard of the 50-30-20 rule when it comes to budgeting. That rule goes as follows: 50% of your money should go on essentials, 30% should go towards things you merely want instead of need, and 20% should go towards savings or “planning ahead” (which is where loan repayments come in).
That’s an ideal, but it’s not necessarily going to apply to your income. At the very least, you should obey the 50% part of the 50-30-20 rule, with at least half of your income going towards things you need rather than things you want.
5. Check your budget with a partner or friend
If you’re living alone, then it’s essential to try and enlist the help of a partner, close friend, or family member to help you check over your budget.
A fresh pair of eyes will almost always spot something you’ve missed; it’s not an indictment of your ability, but a recognition that someone else is always going to bring a new perspective to things.
Obviously, this is doubly important if you’re budgeting alongside a partner, because the two of you might have missed something that others might be able to spot, and this could be the difference between comfort and struggle.
6. Keep things flexible
Although your budget should be as much of a cast-iron document as possible, it should also be open to change and fluidity. Everything will be different for you every month, so keeping your budget adaptable and flexible is very important.
Each month, take another look at your budget and see what changes you need to make based on that month’s circumstances. Try to be harsh with yourself; if you have more money coming in one month, for instance, try to put more of it towards savings or loan repayments than towards frivolities (although you should find room for those as well!).
7. Review constantly
Since your budget is always in flux, it’s important to review it as often as you can. As well as looking at it to see if you need to make changes every month, you should schedule some time to reexamine the basics of your budget and see if there are any more sweeping alterations you need to make.
After all, your financial circumstances might change in long-term ways that aren’t immediately obvious, and since your budget is useless unless it reflects the realities of your finances, you need to make sure it’s keeping up with the times.
8. Don’t ignore your budget
During times when things are a little better for you, there might be moments in which you’re tempted to ignore your budget or do things that you don’t log in to.
This would be a mistake, though. Remember, your budget is exclusively for your own benefit (and that of any partners or housemates you live with), so overlooking it or trying to work around it is only ultimately going to hurt you.
Try to think of your budget as a financial adviser you must check every time you make a purchase or a financial decision.