In order to develop a clear picture of your personal finances, it is crucial that you create a budget that tracks all of your income and compares it to all of your expenses. This sounds easy in practice but the process can be somewhat challenging. All of those small, day-to-day expenses can add up very quickly and many are easy to forget. To make the process considerably easier, I have prepared a standard budget template for you!

Your Personal Budget

To start the process, download the personal budget (right clicking on the link and save the file) I have created for you and you’ll be well on your way to seeing your financial picture. This will require Microsoft Excel but if you do not have it, you can download OpenOffice free of charge. This budget is intended to be used for monthly expenses so how do you handle expenses like furniture for you home? Surely you won’t be replacing your sofa every month! The idea is simple. Take the amount you spend on furnishings and divide it by the amount of time between purchases. For example, if you spend $1,000 every 5 years for a new sofa, simply divide $1,000 by 60 months to get the monthly amount you need to save for that new sofa. Do this for all expenses you have that you do not use each month.

In order to fill out the budget quickly, I advise you to grab a few months of bank and credit card statements and use those as your guide. I promise you will spot items that you did not even remember buying! You want your budget to be as accurate as possible so using these statements will help you achieve that goal.

The idea behind the budget I have created is to have your bottom-line number equal zero. Once you put in your income and all of your expenses, you will hopefully be left with some extra money. This excess is called “disposable income” and it is the money that is not dedicated to any of your expenses. What you do with this money can mean the difference between retiring early or struggling later in life so I have added an allocation section to the budget.

Allocating Your Disposable Income

So what are you going to do with all of this extra money? If you have any type of debt with a high interest rate (above 10% or so), your best bet will likely be to pay it down. Credit cards can have interest rates higher than 20% so there is no sense in investing your money, only to have your credit card interest swamp any potential earnings you would have from your investments. This common mistake can really hurt you in the long-run. As an example, let’s say you have a Visa card that you are paying 21% on. If you invest it in the stock market and earn 10% annually, you’re actually losing 11% a year by not paying off your debt first. Although this point is quite obvious, the mistake happens time and time again! If you do not have high debt, use the allocation table at the bottom of the budget to show how you could be investing your money, whether it is in a certificate of deposit (CD) or the stock market. Allocate that money across the board so that your bottom-line is zero and you have accounted for every dollar of your income.

Oh No! My Disposable Income Is Negative!

If your disposable income turns out to be negative, this just means that you have more money going to expenses than you have income. In other words, every month you are getting further in debt. To solve this problem, start looking through the expenses and try and eliminate some of the money there. If you are spending more than you are earning, some tough budget cuts are going to be necessary. What can you live without? Do you eat out a lot? Those restaurant meals add up fast! How high is your cable bill? Are you spending money on premium channels? Start looking closely at these expenses and the budget itself will help you decide where you need to make some cuts.

Expenses Not On The Budget

There are millions of items to spend your money on and simply not enough time to add them all to my standard budget. If you have an expense that isn’t included in this excel file, simply add it! Somewhere in the middle of the category, hit “Insert” from the menu bar and then “Row” to make a line for your expense. Type in the name of the expense and the amount but make sure the total at the bottom factors it in. If it doesn’t, contact me and I would be glad to help you.

I Finished My Personal Budget–Now What?

Monitor it! I like to personally look at my bank statement each month and put numbers into my budget in a column to the right so I can see how accurately I predicted my expenses. The idea here is that you may find you need more money allocated to a particular expense than you thought. It is better to catch it now than to run out of money later!

Stay Tuned! There’s More To Come!

Once you have created your own personal budget, check back with DailyBrilliance.com regularly. There will be plenty of personal finance topics covered that will help you pay down debt, manage your money wisely and live an easier life!