Personal Budget

Personal budget could be described as a form of financial plan. It is normally made by individuals in order to address the various financial needs they might be having. The personal budget plans are extremely useful in the context of personal finance.

Areas of Personal Budget
The personal budget plans are used by individuals in order to look after the following areas:
Expenditure
Repayment of Debt
Savings
The personal budget plans of different individuals are separate from one another. However, there are certain common categories that are considered when formulating a personal budget plan:
Taxes
Savings
Housing
Medical
Food
Dental
Automobile
Miscellaneous
Insurance
School
Debts
Childcare
Refreshment and Amusement
Investment
Clothing

Devices of Personal Budget
The tools and devices that help one to make a perfect personal budget plan include the following:

Spending management software
Manual means like paper and pencil
Money management software like You Need a Budget, Quicken, Mvelopes and Microsoft Money
Spreadsheet software like Microsoft Excel, OpenOffice.org Calc and iWork Numbers for example

Important Concepts of Personal Budget
While making a personal budget some important notions have to be kept in mind. The following concepts help one to make a personal budget plan that is effective:

Making budgets for inconsistent income
Purpose of the budget
Making it flexible
Maintaining simplicity
The individual who is making the personal budget should be clear about his priorities. He should know what he wants to achieve by making the budget as that enables him to make an efficient budget. In order to make sure that the budget works it has to be kept as simple as possible.
Guidelines of Allocation for Personal Budget
One of the most important factors of personal budget is proper distribution of the financial resources. There are different guidelines that have been developed for this purpose by financial services providers:

Housing as 25% of spendable income
The 60% Solution

Following the Personal Budget
Keeping track of the budget after it has been made is an important task. There are several methods that have been developed for this purpose:

Spreadsheet budgeting with date-shifting
Envelope Accounting

 

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Last Updated on : 1st July 2013