Personal budgeting: What to know and tips for getting started

If you're looking to get a handle on your spending and to start saving for your future, then creating a personal budget is a great place to begin.

What is a personal budget?

A personal budget is simply a plan for allocating your income to cover your expenses and reach your financial goals. It may seem overwhelming at first, but don't worry — we're here to give you some handy tips.

Whether you're a budgeting pro or looking to create a personal budget for the first time, you can use this guide to help create a budget.

How to build a budget

A personal budget helps you analyse your income and expenses. With a budget, you can:

• See where your money is going
• Identify areas where you could reduce your spending
• Plan for future expenses
• Allocate funds to different expense categories

A personal budget might also be able to give you a better picture of your current financial situation and get you closer to reaching different money milestones, from short-term targets like saving for a vacation to long-term goals like saving for retirement.

Here’s a quick step-by-step guide to help you build a personal budget:

1. Determine your income: Calculate your total monthly income from all sources, including your salary, any rental income, or side-hustle earnings.
2. List your expenses: Make a list of all your monthly bills, including debt. Include both fixed (like rent or mortgage repayments) and variable expenses (like groceries). Then deduct your monthly expenses from your monthly income in your personal budget
3. Track your spending: Keep track of your spending for one or two months to get a more accurate idea of your expenses. This can help identify areas where you could cut back.
4. Categorise your expenses: Divide your expenses into categories, such as housing, food, healthcare, entertainment, etc.
5. Create your budget: Using the information from the first four steps, you should be ready to create a budget that allocates your income to your expense categories. Make sure to leave some room for savings and unexpected expenses.
6. Review and adjust your budget regularly: Your financial situation may change, so it's important to review and adjust to make sure it remains relevant to your circumstances and goals.

By keeping track of your spending and making adjustments where necessary, you can work towards reaching your financial goals.

Choosing a budget planner or tool

When it comes to building a personal budget planner, you could do it a number of ways:

• Spreadsheets: You could create a budget using a spreadsheet program like Microsoft Excel or Google Sheets, allowing you to customise your budget to your specific needs and easily track your spending.
• Budgeting apps: There are many online budgeting apps and financial management software platforms that could help track your spending and create a budget. Many offer free versions with limited features or premium paid versions.
• Pre-made worksheets: There are also pre-made budgeting worksheets available for free online that you can print or save and use.

Ultimately, the type of budget planner you use will depend on your personal preferences and the features that are important to you.

What is the 50/30/20 rule?

Wondering what the 50/30/20 rule in budgeting is?

The popular 50/30/20 rule is a simple, easy-to-follow budgeting guideline that suggests spending on necessities and saving while still allowing some room for discretionary spending.

The 50% – Necessities

With this rule, approximately 50% of your income would go toward necessities, such as housing, food, transportation, healthcare, etc.

The 30% – Wants

The next 30% is for the fun stuff! This could include spending that involves going out with friends, treating yourself with a holiday, or indulging in your favourite hobbies. Try using tools like PayPal Honey to help get discounts on online Wants purchases.

The 20% – Savings and debt

Think of the last 20% as spending for your future. This is where you could put money into savings, your retirement, or other investments. It could also include a plan to pay off outstanding debt.

How often should you check in on your personal budget?

It's a good idea to check in on your personal budget regularly to ensure you're on track and making progress towards your financial goals.

Reviewing your budget once a month can help you catch any discrepancies or overspending early on, while checking in quarterly (every three months) can give you a longer-term perspective and help you identify trends or patterns in your spending. Once a year, you may want to review your budget to set new financial goals and analyse your progress over the past year.

The frequency with which you check in on your budget will depend on your personal preferences and financial goals. Some people may find it helpful to review their budget more often, while others may prefer to check in less.

Other things to consider when building a personal budget

When building a personal budget, there are several other factors to consider beyond just your income and expenses. For instance, you may want to incorporate other categories for major goals like paying off your mortgage.

Consider what is most important to you and allocate your resources from there.

And don’t forget your financial situation may change over time, so build in a cushion for unexpected expenses and be open to adjusting your budget as needed.