How To Create a Personal Budget and Stick to It

Managing money is a way to cultivate the fruit of your work and maximise its enjoyment where possible. It may be a lot to ask from a person and a spreadsheet, but trust me, it’s a skill anyone can acquire and even have fun applying.

If you’re exchanging your dearest possessions—time and energy—for a wage each week, then it’s essential to learn how to budget and manage finances at home.

Document all your earnings and expenses obsessively

The first step is to get to know your “buckets” or broad categories of expenses on which you spend money from your monthly income stream — this is the home budget, which is also your basis for managing finances.

A few common categories used in home budgets include the following:

  • Food & Household

  • Communications
  • Transport
  • Personal Care & Clothing

  • Health & Fitness
  • Entertainment

  • Learning
  • Travelling

  • Tech, Tools & Gadgets

  • Miscellaneous

Every day, without fail, enter how much money you spend on each category. You can easily keep track of your spending on a spreadsheet or by using one of the many home budgeting and personal financial management apps available.

Apart from noting your expenses, you should also keep track of your earnings each month, including how much you spend on taxes and contributions.

The difference between income and expenses underpins every aspect of financial management, and nothing brings home the truth then by calculating for the first time the exact value of every minute of work you do.

Remember that the power of tracking the past is in the ability to see patterns and thus attempting to predict the future.

Pay yourself first, or, build a savings cushion

The basic rule is this: put aside a portion of your paycheck every month, no questions asked. I think saving at least 10% each sounds nice, but the exact amount is up to you to decide.

Many books about money management, written by so-called gurus, quickly level up the discussion about savings to equities and bonds. If you’re new to all this, it’s easier to stick to cash savings first and explore the possibilities offered by investment funds later, with the help of a professional.

This monthly contribution you pay yourself will become your “emergency cushion”, which as the name suggests, is meant to be used only for cases that threaten your livelihood. With time you can begin building a deeper cushion; consider this as your legacy, whether intended for future generations or as a nest egg to be enjoyed when you retire.

Remember to budget for fun times too

I believe nobody has whispered “budget” in the ear of a loved one to set the mood and succeeded. However, there’s really a lot you can get excited about by learning to use home budgets as part of your goal-making process.

The key to goals that work is the ability to track your progress in achieving it and a home budget gives you the data to do this more accurately and effectively.

Moreover, by actively budgeting and putting aside money for your goals (such as a holiday or tech) you get to enjoy guilt-free spending, as opposed to mindless consuming, as you’ll have fully earned your reward.

Managing finances as a couple or family

Budgeting or managing personal finances as a couple or family is probably the ultimate trust-building exercise, so it’s a good idea to approach this matter carefully. Sharing financial information with your partner can be daunting, although it will be a lot less awkward if you’re both young and broke!

There’s strength in unity, as well as greater financial security. Joining forces in this way requires a level of openness that will test a relationship, but if money is the root of evil then it’s also possible that managing it properly could be the door to love.

Children, especially as they grow older and more independent, have a right to be educated in financial management and eventually be involved in it too. Like the “sex talk”, this is a topic that any responsible parent shouldn’t outsource to a teacher or life.

In both cases, couples or families, the key is to introduce greater knowledge and transparency about finances gradually and with a corresponding level of participation in the budgeting process.

Start planning for the future as soon as possible

It might not be an option for everyone at first, but at some point when you’re already saving regularly, I suggest giving serious thought to investing in a private pension fund that can supplement what you and your employer pay into social security contributions.

Planning for the future often means planning for all things that could go wrong, so it’s here that the various types of insurance products come in. Home insurance is mandatory if you’re applying for a home loan, so your budget will eventually have to factor this expense as well if you decide to become a homeowner.

Budgeting and managing finances depend on there being a stream of income in the first place, so the most extreme scenario you need to guard against is one where no money is coming in; usually due to unemployment, injury or sickness.

After calculating your average monthly expenses, it’s a good idea to save enough money to be able to cover at least three months’ worth of expenses—i.e. building your “cushion”—in case of a sudden loss of income. Actually, I suggest aiming for six months and then gradually keep trying to extend it as further as you can.

In the final analysis, one of the best way to save money and avoid causing unnecessary hardship to yourself is to follow these three rules: keep healthy, live modestly, and share luxuries with friends.

If nothing else, it reminds you that it can all be worth it

Learning how to budget at home and managing personal finances is a fundamental part of the “stability” that people keep talking about in respect to adulthood.

This isn’t rocket science, and it isn’t some magical formula that will make you wealthy overnight as a few self-help books seem to imply either. Rather, money management is like a mirror that reflects where you stand today and where you could be heading tomorrow.

I believe this knowledge alone may offer young people a lot more stability and awareness of their position in society than many of us could hope for otherwise.