7 Easy Steps for Creating your Personal Budget

In this important post, I will explain why budgeting is essential and the first step to your financial abundance and especially for women.

Let’s face it, most people do not find looking at and preparing a financial budget a fun task to do. It can be tedious to understand your expenses and some people might prefer to not know to avoid feeling guilty about their financial choices. You don’t need to feel guilty, if you have an expense which is important to you then you simply need to budget for it.

Micro-managing your income can be time-consuming and we all prefer to spend our time on something much more satisfying. 

Budgeting is an essential skill that empowers you to manage your finances effectively, plan for future expenses, and achieve financial stability and abundance. 

We often juggle multiple responsibilities and roles, having a well-structured personal budget can be a game-changer. Whether you’re single, married, a student, a working professional, or a stay-at-home mum, budgeting can help you take control of your finances and give you the confidence to make better financial choices. This guide will walk you through the easiest way to prepare a personal budget tailored budget.

• Financial Independence: Achieving financial independence is a significant step towards empowerment and your overall abundance. A well-managed budget helps you make informed financial decisions, reducing dependence on others.
  
• Future Planning: We often have longer life expectancies and may spend more time in retirement. Budgeting ensures that you are prepared for long-term financial needs, including retirement savings.
  
• Career Breaks: Women may take career breaks for various reasons such as parental leave or caring for family members. A budget can help you manage finances during these periods without compromising financial security.
  
• Unexpected Expenses: Life is unpredictable. A budget helps you build an emergency fund to handle unexpected expenses like medical bills or car repairs.

1. Assess Your Financial Situation

The first step in creating a budget is understanding your current financial situation. This involves calculating your net income, listing your expenses, and assessing your debts and savings. If you use a debit or credit card for all your expenses, then reviewing your bank or credit card statement will show you all your itemised expenses.

• Calculate Net Income: Your net income is the amount you take home after taxes and deductions. This includes your salary, freelance earnings, rental and investment income, child support, or any other sources of income.
• List Your Expenses: Categorise your expenses into fixed and variable. Fixed expenses are regular and predictable (e.g., rent, mortgage, insurance), while variable expenses fluctuate (e.g., groceries, entertainment, clothing).
• Assess Debts and Savings: Make a list of all your debts (credit card balances, loans) and your current savings (emergency fund, retirement accounts, savings accounts).

2. Set Financial Goals

Setting clear, realistic financial goals is crucial for creating an effective budget. Goals can be short-term (saving for a holiday), medium-term (buying a car or house), or long-term (retirement planning).

• Short-Term Goals: These are goals you plan to achieve within a year. Examples include building an emergency fund or paying off a credit card.
  
• Medium-Term Goals: These are goals you aim to achieve within one to five years. Examples include saving for a down payment on a house or funding a small business.
  
• Long-Term Goals: These are goals that take more than five years to achieve. Examples include retirement savings or funding your child’s education.

3. Choose a Budgeting Method

There are several budgeting methods you can choose from. Pick a budgeting system that suits your lifestyle and financial situation. Here are some examples.

• 40/40/10/10 Rule: This simple and my preferred method allocates 40% of your income to fixed expenses, 40% to variable expenses, 10% to savings and 10% to debt repayment. It’s ideal for those who prefer a straightforward approach.
  
• Envelope System: This cash-based method involves allocating money into different envelopes for various spending categories. It’s great for those who want to control spending and avoid using credit and debit cards.
  
• Zero-Based Budgeting: Similar to the 40/40/10/10 Rule, this method requires you to allocate every dollar of your income to expenses, savings, or debt repayment, ensuring your income minus expenses equals zero. It’s effective for those who want to account for every dollar.

4. Create Your Budget

Now that you have chosen a budgeting method, it’s time to create your budget. Here’s how:

• Track Your Spending: For a month, track all your expenses to understand your spending habits. Use your bank statements, a budgeting app, a spreadsheet, or a journal to record every transaction.
  
• Categorise Expenses: Divide your expenses into categories such as housing, transportation, food, entertainment, healthcare, insurance, savings, and debt repayment. This will make it easier to determine the amount of your fixed versus variable expenses.
  
• Allocate Funds: Based on your chosen budgeting method, allocate your income to each expense category. Make sure to prioritise needs over wants and allocate funds to savings and debt repayment.

5. Implement and Monitor Your Budget

Creating a budget is just the beginning. Implementing and monitoring it is crucial for success.

• Automate Emergency Funds and Savings: 
  • Arrange a separate savings account and have a periodic payment or ask your employer to allocate 10% of your pay check to this account. If you don’t have an Emergency Fund, then use this amount to build it up. See my tips on strategies for building your savings.
    
• Automate Fixed Expenses and Bill Payments: 
  • Set up a calendar where you note the day each Bill is due and how much needs to be allocated. 
  • Set up automatic transfers to a dedicated account for your fixed expense amount from each pay check and arrange all your fixed expenses to be automatically deducted.
  • Set up reminders a few days before, so you know when the Bill is due and can check you have sufficient funds in your account. 

Scheduling automatic bill payments will avoid late fees and avoid any stressful surprises. 

• Review and Adjust: Regularly review your budget to track your progress and make adjustments as needed. Life circumstances change, and your budget should be flexible enough to accommodate these changes.
  
• Use Budgeting Tools: Take advantage of budgeting tools and apps that can simplify the process.

6. Involve Your Family

If you share finances with a partner or family, involve them in the budgeting process. Open communication ensures everyone is on the same page and working towards common financial goals.

• Discuss Financial Goals: Have regular discussions about your financial goals and progress. This fosters accountability.
  
• Assign Responsibilities: Divide financial responsibilities, such as bill payments or grocery shopping, to ensure everyone contributes to maintaining the budget.
  
• Set Joint Goals: Work together to set joint financial goals, such as saving for a family vacation or paying off a loan. Joint goals can strengthen your financial partnership.

7. Stay Motivated

Staying motivated can be challenging, especially when facing financial setbacks. Here are some tips to keep you on track:

• Celebrate Milestones: Celebrate small victories, such as paying off a credit card or reaching a savings goal. This boosts your motivation and keeps you focused.
  
• Visualise Your Goals: Create a vision board or use a goal-tracking app to visualise your financial goals. Seeing your progress can be a powerful motivator.
  
• Stay Positive: Focus on the benefits of budgeting, such as financial security and peace of mind. Remind yourself why you started and stay committed to your goals.

While the basics of budgeting are universal, there are some special considerations for women that can impact financial abundance:

1. Career Interruptions: Women are more likely to take career breaks for childbirth, childcare, or eldercare. Plan for these interruptions by building a substantial emergency fund and investing in retirement accounts.
   
2. Gender Pay Gap: Despite progress, the gender pay gap persists. Advocate for fair pay, negotiate salaries, and seek professional development opportunities to enhance your earning potential.
   
3. Healthcare Costs: Women often face higher healthcare costs. Include adequate health insurance coverage and a healthcare savings plan in your budget to manage these expenses.
   
4. Longevity: Women generally live longer than men, which means they need more savings for retirement. Prioritise your Emergency Fund and retirement savings early to ensure your financial security in your later years.

1. Keep it Simple: Start with a basic budget and gradually add details as you become more comfortable. Overcomplicating your budget can lead to frustration and abandonment. I prefer the 40/40/10/10 rule discussed earlier. Monitoring two or three accounts is much simpler and transparent plus you will know at a glance whether your Budget is on track.
   
2. Be Realistic: Set realistic goals and expectations. An overly restrictive budget is hard to maintain and can lead to burnout.
   
3. Allow for Flexibility: Life is unpredictable, and your budget should be flexible enough to adapt to changes. Allow some wiggle room for unexpected expenses.
   
4. Use Technology: Leverage technology to simplify budgeting. Budgeting apps and online banking tools can help you track expenses, set goals, and monitor progress.
   
5. Seek Professional Advice: If you’re struggling with budgeting, consider seeking advice from a financial advisor. They can provide personalised guidance and help you create a sustainable budget.

Creating a personal budget is a powerful step towards financial empowerment and abundance, especially for women.

It provides a clear picture of your financial situation, helps you achieve your goals, and ensures long-term financial security and growing your financial abundance. By following this guide, you can create an easy-to-manage budget tailored to your needs and lifestyle.

Remember, the key to successful budgeting is consistency and flexibility. Regularly review and adjust your budget to reflect changes in your life and stay committed to your financial goals. With determination and the right approach, you can achieve financial abundance and peace of mind to grow your overall feelings of abundance.

Happy budgeting and abundance!

Alice xo