Most people always seems to be broke even though they have good job that is paying them well, if I may ask why is it that so many millionaire athletes go bankrupt as soon as they retire. The truth is that there are lots of ways to make money but not everyone leverages the money they make wisely.
They spend too much on things they don't really need, then when things get tough or maybe they want to achieve big goals such as buying a house or retiring early, they now realize they don't have enough money left. If you really want to make sure that you are being smart with your money, you need at least one very important thing known as a personal Budget.
What is a Personal Budget?
A personal budget is an individual financial plan, which enables the individual to keep track of how much money they make and spend, what they spend it on and how much saved.
A personal budget can also be an approach taken by an individual to monitor the inflow of money and expenses within a period of time. Let's look at one month for instance, assuming the combination of your allowance and part time job gives you a total of $2000 per month, that total is referred to as your income for that month.
The 50-20-30 Rule
The 50-20-30 rule are rules given by financial professionals and experts. This rule simply means you can spend 50% of your income on your needs, 30% on your wants and 20% should be put away in your savings.
Following this rule is very important because spending money is very easy than saving it, so it's important that you set aside the money for savings first before others.
According to the rule, 20% of $2000 income is $400, that means every month $400 will go straight into your savings. Avoid touching your savings until the need comes up. Then 50% of $2000 income per month is $1000, you have to keep this figure handy for your needs. Example things that are absolutely necessary, when you're older you think of things like house payments, groceries, medical bills etc but now as a youngster you think of clothes, shoes, lunch money, sports equipment or maybe a car etc.
Finally, you can spend 30% of your $2000 monthly income which is $600 on your wants , especially things that you enjoy but not essential. This could be the money you spend going out with your friends or shopping.
Your wants maybe important to you but not as important as your needs and savings. If your budget is ever out of balance, you need to reduce your spending.
Steps To Create Your Personal Budget
1. Find out your income: This has to do with how much you make per month, if you make money in couple of different ways ensure you add it all together, so that you are working with your total monthly income.
2. Divide your income into percentages following the 50-30-20 rule: This will help you to know exactly how much you should be spending on your needs and wants also how much you should put away into your savings every month.
3. Prioritize your spending: Consider the things you should spend your money on and on what category they fit into, then you have to decide on what you need to do in order to get your spending and saving habits to match your new personal budget.
4. You Have to set some goals: It is always easier to save up money when you have a goal in your mind, maybe you want to travel on vacation, or something very important you want to buy or you want to have peace of mind whenever emergency comes up.
Find out how much money you will need and how long it will take to save that up. Finally, knowing what your financial goals are, is a great way to stick to your personal budget
The Importance Of Personal Budget
1. A personal budget allows you to track your income and expenses. It gives you clear picture of where your money is being spent
2. Personal budget gives you a total control over your money and disallowing your money to have control over you. A personal budget allows you to make decisions whether to sacrifice short term expenses like eating at restaurants everyday in exchange for long term goals like buying a house in the future.
However, it is important to make your financial plans flexible, so that you can be able to adapt in case of emergencies such as medical bills, urgent vehicle repair.
3. A personal budget can help you plan for emergencies.
4. It keeps you financially organized. By making a list of all your monthly expenses which includes foods, internet, mortgage or rent etc. It will become easy to know how much you will need to spend on individual services or items.
5. It helps you to build a better spending habits. That means personal budget can help you eliminate overspending.
6. It allows you to prioritize your spending and keep track of how you're doing and also help you to realize when you need to stop.
7. Personal budgeting is the biggest tool you ever needed to change your financial future.
8. It gives you power to make changes in your finance, starting today.
9. Personal budget can help you achieve a long-term goal.
10. Finally, personal budget ensures that, you don't spend the money you don't have.
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