What is a Personal Finance Budget?

In tough economic times individuals and families realize it may be time to re-examine finances. A dollar does not stretch as far as it once did, and some families are finding it difficult to meet financial obligations. A budget can define spending patterns, cash limitations and areas of over spending. Learning a personal finance budget and using it as a tool can get many families back on track financially.

Monthly Income

As a family or an individual list all available net income for each month on paper. If your family has two incomes from both the husband and wife, these should both be accounted for on the budget. Realistic income is money you can count on each month as take home pay (net).

Spending Patterns

On your budget underneath the total net income list a series of categories where you spend money each month. For example, mortgage payments, rent, water bills, electric costs, cell phone costs, insurance payments, clothing, food, entertainment, miscellaneous and gasoline expenditures.

List the average amounts spent in each category monthly and if the amount is consistent and never changes use that amount.

Study the list carefully and you are likely to be surprised at where some of your monthly income is going.

Over Spending

Examine your spending patterns and each category. Focus on where the money is spent each month. Note each monthly bill that cannot be changed or adjusted. Look at monthly payments that could be lowered with a bit of research. For example, a mortgage payment and vehicle loans could be refinanced at lower interest rates, which would lower your monthly payment. Check homeowners and auto insurance policies to see if you have too much coverage since the downturn in the economy.

Focus on other categories where you can cut spending. Setting restrictions or guidelines on cell phone usage may save money. Cut spending for clothing where applicable. Teenagers will make it through without all the latest fads. Cut food spending by making grocery lists, using coupons and buying in bulk for savings. Entertainment and vacations are categories where you can cut spending.

If you are paying for childcare outside the home, it may be more economical for one adult to quit a job and not paying the high costs for childcare. Many families are saving by having one adult work from home eliminating childcare bills.

Using the Budget

After cutting costs and re-evaluating your spending habits, you now have a realistic picture of your monthly bills. Compare your bills against your net monthly income. Set aside the minimum amount required for each bill from your income.

If you do not have enough income to pay your bills, you must cut additional spending in areas of flexible spending. Entertainment, clothing, food, vacations and gasoline spending are all places to cut spending.