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Start Developing Your Personal Monthly Budget.



Majority of you are familiar with what a budget is, and have used or created one before. However, very few are in the habit of creating and working with a personal monthly budget or quarterly budget. In simple terms, a personal budget is a financial plan that shows how your expected income is to be spent. In other words, it allocates your expected income to your consumption, savings and debt repayment (if any).

Developing a budget could be tasking, but it is well worth the time and effort, as it gives a beneficial breakdown of expenses by category. It also enables the planner to maintain a stable financial lifestyle, build wealth, clear debt and prepares him for financial emergencies. A properly developed personal budget will help you answer the following questions:

  1. How much do I spend on what I want versus what I need?
  2. What is my recurring monthly savings, and can I save more?
  3. Do I spend more on priority things?
  4. Do I have control over where my money goes?

The key to getting the best out of your personal budget is to keep it simple. The more complicated your budget is, the less likely you stick to it. The purpose of the budget is not to make a record of everything you are likely to purchase or consume, but to categorize your expenditure and place a reasonable ceiling on each category.

In preparing a personal budget, you will need the following information:

  • Expected monthly income
  • Projected expenses (By category)
  • How much you plan to save from the expected income
  • How much cash balance you intend to have at the end of the month

Your expected monthly income should be a sum total of all your streams of income. It is important to ensure that this figure is realistic, and even advisable to make it a bit lower than your actual revenue expectation (Accountants call this the Prudence Concept).

For individuals like freelancers and businessmen with irregular monthly income, it is advisable to base your expected income on your average (yearly) income- Annual income divided by 12months. In cases where the record is unavailable, a reasonable target should be set, and used as the expected income.

Your projected expenses should be categorized, for example, into housing and utility, automobile, debt repayment, child expenses, clothing, medical/ dental, family and charity, etc.

The amount you intend to save could be a fixed percentage of expected income. For example, if fixed at 13%, and your expected monthly income is N75,000 then your projected savings would be N9,750.

The cash balance is what is left after taking care of all expenses and planned savings. It could be added to savings, invested or held for precautionary motives.

Your expected monthly income equals the sum total of projected expenses, savings and cash balance.

Creating Your First Personal Budget

A pen and paper is enough to start with, but you wouldn’t want to lose your detached budget midway, would you? Therefore, I recommend the use of a hard-cover note or journal book that will remain durable over a long period of time.

Alternatively (preferably), a personal budget could also be created with the use of a spreadsheet. In this case, Microsoft Office offers a free template for a personal budget. You can get that microsoft personal budget template here. This template makes it easy because you do not need to be an excel guru to work with it. All you have to do is enter your own figures. It comes with charts to reflect certain data like the percentage of income spent, and a bar chart comparing income with expenses. You can also research other free templates to make your budgeting easier.

It is important to note that a budget is an estimation, and will be meaningless if you do not keep a record of your actual income and expenditure. By this, you can keep track of how well you stuck to your budget (and also note the variances), and create better and more realistic budgets with time.

If you have not been operating a monthly personal budget, now is the time to take your personal finances to the next level, and rise to a healthier financial lifestyle.