A budget is one of the most important financial tools. Budgeting is a very personal exercise, and you will always be the best person to create your budget because no one knows your needs better than you do!

A budget organizes the financial data in your life, breaking it down into categories. It only takes a notepad and a little time to list your basic wants and needs. It is a valuable tool to understand where your money goes and determine where you want it to go.

Budgeting allows you to prioritize and focus your money on the things that are critical to your lifestyle. But budgeting also helps you plan for the future, helping you set aside funds for emergencies, major purchases, or retirement.

Even billionaires have a budget!

Below are a few tips to start the process. Also, you can use our practical budgeting template to fast-track the process.

Budgeting Basics

The primary purpose of budgeting is to allocate your income to expected and unexpected expenses. An excellent way to start your budget is by making a list of your monthly expenses and grouping them into different categories like entertainment, food, living expenses, etc.  Once you do this, crosscheck your list with your bank statements to make sure you’ve included all your expenses.

How much should I spend? 

The first entry on your budget should be the money you pay yourself. A good rule is to set 10% of your paycheck aside for savings, though you could always save more or less depending on different expenses that arise each month. You should create a budget that fits your needs, so it’s important to develop a good ratio for your different expense categories. An easy way to come up with this ratio is to use our budgeting template!

Related: Start an Emergency Fund

Follow and Review Budget

After creating a personal budget, reviewing your budget, you should continue to review it from time to time.

At the end of each month, check the total amount of your income and expenses. If you aren’t within your budget, look for ways you can cut down your spending. If your spending is much less than expected, think about what you can do with that extra cash. With this money, you can treat yourself, invest in a business or start your own!