10 Steps to Make a Personal or Family Budget

Times are tough for people everywhere in the world. You are not alone. High inflation is making everything more expensive. Even families that did not previously count small change, are now having to reconsider their purchases. Even at the supermarket, people are turning to less expensive store brands and giving up on luxury items, trying to cut down on unnecessary spending.

A personal or family budget is the best tool you can have to live within your means in tough times and otherwise. Making one, the process of thinking and rethinking what are needs and what are merely nice-to-haves will help you get through tough times without running up unnecessary credit card bills or getting caught in the debt trap.

A personal or family budget is the best tool you can have to live within your means.
~ Nilooka Dissanayake

Creating a personal or family budget is an excellent way to manage your finances and ensure that you are on your way to achieving your financial goals. Here are 10 steps to help you create a budget:

Follow these 10 Steps and You Have a Budget!

1. Closely examine your financial goals: Begin by identifying what your short-term and long-term financial goals are. Your financial goals could be paying off debts you’ve already taken, including credit card bills, saving enough for a down payment on a house, or building an emergency fund that would prevent you from living from paycheck to paycheck and give you some financial solace, in case you lose your job or income.

2. Assess your current financial situation: This means taking a good look at your incomes, expenses, assets, and debts. Make a list of where your money comes from. The list would include your salary, returns on investments, and any other sources of income. Begin collecting details on your regular expenses, including rent/mortgage, utility bills—water, electricity, internet etc.—groceries, transportation, insurance, and debt payments. Also, sit down and make a list of how much you owe in total, by way of credit cards, personal and other bank loans and loans from friends and relatives. Also make a list of all the assets you own.

3. Track your daily spending: Keep track of your daily—yes, daily—expenses for at least a month. Write down in a notebook. Doing so gives you an accurate picture of where your money is going each month. You can use bank statements, receipts from purchases and even budgeting apps to categorise and record your expenses. Or just use a small notebook. Tracking your spending will help you find out the areas in which you can cut back or make adjustments.

4. Categorise your expenses: Divide your expenses into categories like housing, transportation, food, utilities, entertainment, debt repayments, savings and investments. Include your insurance premiums as well. Making these categories will give you a clear overview of your spending habits.

5. Set realistic targets: Based on your financial goals, set realistic targets for each spending category. Consider your income, essential expenses, and savings priorities when doing so. For example, you might want to allocate a certain percentage of your income towards savings, debt repayment, and discretionary spending on a monthly basis.

6. Create a budgeting system: This means finding a method to manage your budget effectively. You can use a spreadsheet, budgeting software, or mobile apps specifically designed for budgeting. Many banks also provide online tools to help you track and categorise your expenses. If none of that is accessible, no problem. Use a notebook and pen.

7. Allocate your income by choice: Divide how you will be spending your income—the money that comes into your hands—to different categories based on your targets and priorities. Put aside money for essential payments on housing, utilities, and paying off debt, even if it is little by little. Then allocate funds for savings and discretionary spending. We do realise that often your income may not be sufficient to meet all the expenses you are used to. But that was what Step 4 was all about. Knowing where you spend money helps you cut down unnecessary costs.

8. Monitor and adjust your budget to get close to reality: Regularly review your budget. Make sure you’re staying on track. Keep a close eye on your spending. Keep comparing it to your allocated amounts for each month and make necessary adjustments. At the beginning there will always be a lot of adjustments needed. But you are getting there. Do not be discouraged. You want to be flexible. You must be willing to adapt in your spending habits and the budget as your circumstances change.

9. Save for emergencies: Include an emergency fund as a separate category in your budget. If you don’t have one already, try to gradually build up enough to pay for living expenses for at least three to six months. You may want to use a separate savings account for this and hide away your debit card. Emergency savings protect you and your family from unexpected financial challenges in case of job loss, long illness or family problems that prevent your earning.

10. Be mindful of your progress and stick to your budget: Regularly look at your financial goals to track your progress. Celebrate milestones along the way, even when they are little things like not getting an extra treat. At the beginning you may want to stray from your goals. This is normal. You are human after all. At such times, keeping a written or visual record of your financial goals will help you avoid temptation. Try to find others, friends and relatives who are trying to stick to their budgets. Stay away from those who do not have the same financial pressures as you or do not care to be buried under a mountain of debt. Use your budget as a tool to remain motivated and accountable.

Remember, creating a personal or family budget is just the first step. The key to successful budgeting is to stick to it consistently, making necessary adjustments, and staying committed to your financial goals.