HOW TO MAKE A PERSONAL BUDGET?

The first thing you will need to do is to collect all your bills, receipts and other documents which will help you monitor your spending for the month. A good idea is to jot down all your expenses in a notebook. Include both fixed and variable expenses in your list.

Fixed expenses: are those that stay the same every month (at least for a relatively long period). These are expenses that have been committed for a long term. For example, rent, school fees of your children, wages paid out to domestic helps, etc are all fixed expenses.

Variable expenses, on the other hand, are those that change from month to month. Expenses on food, clothing, electricity and phone bills, entertainment, etc. could be clubbed under this head. You have a relatively higher control over some of these.

Steps to Creating an Effective Personal Budget - 

Make a list of all of your monthly income: If you have received an annual bonus, divide this number by 12. Do the same to all other lump sum incomes of an annual nature. It is important to list all sources.

Next, make a list of all your monthly expenses: If an expense occurs less frequently, convert it to the monthly format. Be sure to include all expenses as housing, food, transportation, utilities, entertainment, etc. It is wise to track your spending for a full month during this stage. Now you can see for yourself if your income covers all of your current expenses. If the answer is no, then you need to cut down on your expenses. Depending on the amount of the shortfall, you may choose to reduce some of your variable expense (such as spending money on movies or junk food!) or increase your earnings. For example, you could take up a part-time job after your regular work hours, or give tuitions.

If your income is in excess of your expenses, consider investing the difference instead of spending it.

If you have just started the budgeting exercise, it may be difficult to keep all records. Do not worry; just keeping tracking of as many expenses as you can. The more accurate and complete this exercise is the easier and more effective will your cash flow planning be.