Take Personal Responsibility for your Budget with a Personal Budget Plan

No matter what your age, taking action to prevent debt now is far more effective and less stressful that any method of getting out of debt in the future – unless you win the lottery. However, to realistically achieve stable finances and avoid economic debt involves what some feel to be a distasteful step – accepting personal responsibility.

Social Responsibility

In today’s world, many people feel that they have no social responsibility for debts they build up. Instead they blame their debts on everything from the government to their spouses to the cost of running their new car. But, to be able to take charge of your finances, accepting personal responsibility is a must. You are the one that spends money, so if you buy something you don’t really need, or take out a large car loan on a vehicle that uses too much expensive fuel, the blame lies with you.

The truth is that with many of the world’s governments close to facing financial meltdown, it is your social responsibility to be aware and take care of your own finances rather than expect everything to be done by a nanny government; because it is only if you accept personal responsibility for your finances that you can set up and realistically keep a personal budget and avoid personal debt.

Why You Need a Personal Financial Budget

If you can set up and stick to a financial budget it helps you to bring your spending under control. You will find that having such a monthly budget makes you think before making unneeded impulse purchases, compare items before purchase for the best buy for your needs, and even help you to put aside some money for savings or investments.

Personal Budgeting

The first step in personal budgeting is planning your financial budget accurately. The simplest way to do this is to make a list of all money coming in, and all money going out. On one list, write in your total monthly income, on another your total monthly expenses. Be as truthful and exact as possible and just by doing this you may be surprised to learn where your money goes – and where you could make some quick and easy savings as part of your personal budgeting. 

As most people do not really consider small expenditure in their budgets, you may find that making sure that your monthly financial budget is accurate may take a month or two. To make sure you include all expenditure, every night you should note down exactly what you have spent, and where and why you spent this money. This is easy for big items like mortgage payments, rent, child support, etc. but it is often small items such as the mid-morning coffee and donut, or candy bar and lottery tickets from the garage when fueling the car that get forgotten. Such small expenditure may only be a few dollars a day, but day-by-day it can quickly mount up to a few hundred dollars a month – and if you placed many of the small items on your credit card rather than paying cash, with interest charges it can mount to a few thousand each year.

When you feel that you have identified all of your monthly income and expenditure details – and do not forget to include things you paid for on your credit card as part of you monthly expenses (plus any interest charges) - you must then determine if you are really living within your means; that is, does your monthly income cover all your monthly expenses.  

A trap that many people fall into is using credit cards to cover small amounts of monthly overspending. With all the good intentions in the world they do this planning to pay it off when they have some extra overtime, or an annual bonus from work, sell their old car, etc. The problem with this is that the little extra may never appear for some reason or, just as likely, by the time that money does come in, interest charges mean you are back where you started – with monthly spending higher than monthly income. 

When you have identified all income and outgoings, you need a budget to work from. Obviously, the maximum budget you can allow yourself on your budget plan must equal or be lower than your total monthly income.  

Budget Plan

At its most basic level, the setting of a budget plan simply means accurately budgeting with your personal finances, the goal being to ensure that your income matches or exceeds your expenditure. To do this successfully you need a budget that matches your needs, without being overly complicated to manage, or requiring you to make frequent large changes to your lifestyle.

When setting up a budget plan, you should base the maximum expenditure on your actual monthly income and, unless you actually have the money in hand, not include any additions such as overtime, commissions or bonus payments. It is and old but true adage that you ‘shouldn’t count your chickens until they hatch,’ so don’t spend money you haven’t yet received as even a slight delay may mean you have to pay out interest.   

Covering Budget Deficits

In preparing your lists of personal finances, if you have identified that outgoings are higher than income, you have two choices: increase your income, or more realistically, reduce your outgoings.

If the discrepancy is small, you may well be able to identify small savings you can make without disrupting or impacting your lifestyle too heavily. This is where making daily notes on exactly what, where, and why you spend money can be very helpful. You can often identify items such as that extra candy bar or magazine you buy but don’t always read. Forgoing these small items has little to no real impact on your lifestyle, by may have a very big impact on ensuring that you can balance your budget.    

Unfortunately, if your budget shows a large negative discrepancy there may be no avoiding some lifestyle changes. Unpleasant as I may be, if you are spending out too much, you must make some hard decisions, and it is far better to find ways to reduce your outgoings before you find yourself bowed under large debts you can’t pay off. While having impressive toys such as a vacation cottage, fast car, or newest electronic gadget may be desirable, be realistic and ask yourself, “Can I really afford this.” The truthful answer in many cases is no.

If you are at that happy state where your income exceeds your budget outcome, don’t just assume you can spend more. One of the first things your monthly budget must have is some money set aside for savings. Try to pay this into a savings account at the start of the month. Because If as if you have extra money in your pocket the temptation is always there to spend it little-by-little. Budget for each expense, e.g. mortgage or rent, loans, transport, entertainment and savings - and try to stay within your set budget.

If things go wrong

Don’t get too despondent if things don’t go exactly as planned immediately. Life is dynamic and things can and do change, so you must change with them. Remember that you have a personal budget to make your money go the farthest in helping you meet your goals, not make you worried about every penny you spend.

One of the biggest causes of failure to keep to a budget is time. You need a budget that works with your lifestyle, allows for dynamic changes as and when necessary and you can stick to over a long period of time. Having a personal budget is not an immediate fix for financial problems, but it is a solution that over time considerably reduces the chance of getting into serious debt.