This article contains links that we may receive compensation for clicking but not being free to you.
Financial expert Dave Ramsey said it best when he explained how a budget tells your money where to go instead of wondering where to go – wise advice that all consumers should follow.
This article will tell you why you need a budget and what budget categories to consider when allocating funds on a monthly basis.
Top personal budget categories
I’ve identified the main personal budget categories to consider as you plan, as well as some general advice on how much of your income to go into each area.
Remember that every investor is unique. Therefore, your situation will most likely need to be adapted to your individual situation.
Disclaimer: The following is a sample budget created for a single consumer who does not need to have a household and childcare budget. You may want to create some of your own categories, but this should get you thinking in the right direction.
Your housing budget can include needs such as home maintenance and repairs, mortgage payments, and rent and homeowners association (HOA) payments. It can also include items like toilet paper and services like dry cleaning, as well as separate categories that make sense.
If you are thinking about buying your first home and are on a budget, buying a condo or apartment should keep monthly expenses to a minimum. Home ownership can be very expensive. If you’re not ready to pay a mortgage then you don’t have to take the plunge.
Savings and Debt (25%)
Pay off your student loan and credit card debt every month to keep the debt at a manageable level. Skipping payments can affect your credit score and put you in a position where you can’t get out without help in the form of a loan or credit consolidation.
If you have any money left at the end of the month, put it in the High Yield Savings Accounts (HYSAs) and the stock market so it can earn interest and grow. You may even want to set up automatic deposits to fund savings and investments so that the money flows out of your accounts automatically without your interference.
Two additional points to prioritize in this category are setting up an emergency fund and funding a retirement account. This can be achieved by opening an IRA or Roth IRA. Saving money for retirement is something that all investors should consider.
Health insurance, car insurance, and home insurance are necessary for your well-being. However, consumers often pay too much for these services.
If you dedicate more than 15% of your monthly budget to insurance, it’s a good idea to speak to your providers and look for ways to cut your costs – especially if you work from home and hardly drive.
As a side note, you need life insurance – end of story. And the time to sign up is when you are young and healthy. If you don’t already have life insurance, speak to an agent so you can get a great deal now.
In order to feel good and to give the best in life, one has to eat well. So make sure you have a budget for groceries every month.
If you’re on a tight budget, make it a point to cook at home rather than eat out or take out. You should also make shopping lists when you visit the grocery store, which will prevent you from making frivolous purchases.
Body care (10%)
Personal expenses should be treated like your grocery budget. Don’t go overboard, but don’t be afraid to spend for yourself if necessary. For example, if you need new clothes, buy them (within reason).
If you want to save up for a weekend getaway, go for it. If you want this giant cinnamon bun in the mall, don’t let me hold you back.
Even so, it’s a good idea to keep an eye on your personal expenses so that you don’t buy without sacrificing platforms like Amazon. For example, if you want a streaming service, stick with either Netflix or Hulu. You probably don’t need both.
You may even want to temporarily cancel a subscription and catch up on reading to save money. Similarly, you can also think about switching carriers to get a cheaper tariff.
Health and Wellness (10%)
Think of your health and well-being as a personal investment. Prioritizing your health at a young age can keep you healthy and prevent you from getting sick later in life.
So don’t be afraid to pour money into a gym membership or yoga class (but remember to cancel if you’re not using it!). It will pay off both today and later.
Transportation is another category to consider when creating a budget. After all, you have to go to work, the grocery store, and the doctor’s office, among other things.
The key is to avoid spending too much on auto payments. Cars are a liability and can cost a lot when you add up all of your routine adjustments and oil changes, not to mention surprises.
Why you need budgeting
From having enough cash to cover health insurance premiums and property taxes, to speeding up debt repayments, to optimizing takeaway income, there are a number of benefits associated with setting a budget and sticking to it.
Manage your cash flow
If you’re like most people, you work on a fixed annual salary. This means that you have a limited amount of money to work with. So you have to be careful where it is going.
You can use budgeting to ensure smooth cash flow year round. That way, when the time comes to buy a ton of school supplies at the start of the new year, you’ll have the extra cash you need to easily cover the cost.
If you don’t carefully track spending, you could end up wasting money on things like takeout, entertainment, and clothing.
This is an easy way to deplete your savings and run into debt – especially if you are just getting started on your financial journey.
Life goal plan
Future goals like starting a family, buying a home, and planning retirement can creep up on you.
By forming a budget, you can identify life goals so you can start planning sooner. This will put you in a better position to meet your target initiatives across the board.
Use a budgeting tool
Consider using budgeting software like YNAB (You Need a Budget) so that you can monitor your budget on your phone and learn over time. Some other popular free budgeting tools are Mint and Personal Capital.
Check your budget regularly
Your household needs will change as your financial situation evolves. For example, you can start making more money later, buying a home, or creating a new financial plan.
Don’t be afraid to adjust your budget from time to time to reflect your changing financial situation. A budget is not meant to be set in stone.
One of the hardest parts of staying on a budget is maintaining discipline and avoiding overspending on things like food and entertainment.
Sometimes overspending is inevitable. For example, you can go out for dinner or upgrade your wardrobe. If so, try adjusting a different area of your budget to keep your monthly expenses in check. If you’re buying too much food, you may want to spend less on personal items this month.
frequently asked Questions
In addition to a full-time job, how can you make money?
If you have a steady salary and are struggling to maintain a budget, consider starting a sideline.
A side business or appearance is a job that is a secondary source of income. For example, it may include babysitting or pet care, blogging, or taking surveys online through a website like Swagbucks. This can bring in extra cash to make it easy to save and pay your bills while also entering the hours you might otherwise be spending.
How often should you update a budget?
It’s a good idea to review your budget about every six months to make sure your plan is meeting your changing financial needs. Don’t be afraid to update your budget if there are unforeseen expenses like veterinary bills or home repairs.
How do you budget for kids?
Raising children is expensive and you need to prioritize their needs whenever possible.
When budgeting a child, think short term and long term. Expect to pay hospital bills and doctor visits, baby furniture and accessories, new clothes and accessories, groceries, upgrades for your home, and maybe even a new kid-friendly car. And in the long run, you have to start planning for college earlier than expected.
Planning a child is not impossible, however, and many hard working families manage to do it while bringing in very little income.
What is the FIRE Movement?
The FIRE (financial independence, early retirement) strategy involves a strict lifestyle in order to provide as much money as possible for retirement.
With the FIRE approach, you will avoid unnecessary expenses if possible and pursue an aggressive savings strategy.
The bottom line
Ultimately, everyone needs a budget – regardless of whether you’ve saved a lot of money or just dropping by.
A budget is the only way to manage money, build and maintain wealth. It can be difficult at times and requires discipline. But if you stay the course it will be easier. Your finances will improve, and you can also have the satisfaction of being responsible with money.
Fortunately, there are a plethora of free tools online that you can use to budget and stick to it. And if you need advanced assistance, you can always work with a dedicated financial advisor. However, make sure you can include this in your budget.
Now that you understand the importance of budgeting, the next thing you should do is sit down and create a budget. The sooner you do it, the sooner you will get control of your personal finances. Have fun budgeting!