Monthly Personal Budget: Step by step guide


AuthenticallyAsh: Personal Monthly Budget
We live in a money-obsessed world. Knowing how to create a personal budget is the most important skill a person can learn.  In times of economic crisis, it becomes even more important to know exactly where you can cut back.  If you haven’t noticed, we are looming on the edge of an economic crisis.  You need to know how to create a personal budget before it is too late.

I’m going to walk you through creating a personal budget like the one I create for myself every month.

Step 1: Calculate your income before tax

The amount of tax you pay will be a percentage of your total income.  You especially need this step if you have many streams of income that you need to pay tax on.

Incomes may include:

  • Salary or wages earned
  • Rental income received
  • Advertising revenue if you have adverts on a blog or YouTube account
  • Products sold (for example on Etsy or in a Marketplace)

Write these out like so:

Personal Budget - Income before tax

[Disclaimer: All amounts of money included in the budget photographs are for example purpose only and are not a true reflection of my salary or any of the incomes or expenses in my actual budget]

Step 2: Calculate payments that work on a percentage of your income

Payments that work on a percentage of your income may include:

  • Taxes
  • Unemployment Insurance Fund
  • Tithes to religious organizations

I can’t speak for other religious groups, but as for Christians, Jesus says

“Well, then,” Jesus said, “give to Caesar what belongs to Caesar, and give to God what belongs to God.”  His reply completely amazed them.  – Mark 12:13-17

Follow the laws of your country and pay the taxes that you owe your ruling government.

Many faith groups recommend tithing a part of your income.  At this step, you should deduct the amount that you tithe.  A fair amount is 10% of total income before tax if you don’t donate elsewhere, but you should give as you feel lead.

Write out the payments that you make according to a percentage as shown below.  Then calculate the total money you have available for expenses by subtracting the amounts at Step 2 from the total at Step 1.

Personal Budget - Percentage Payments (Step 2)

Step 3:  Include other incomes that you don’t pay tax on.

There are incomes that you are not required to pay tax on.  These incomes differ from country to country so please research this.  Some common examples:

  • housekeeping allowance from a spouse
  • cash gifts from family/relatives
  • cash back on store loyalty cards

To give a further example of cash back on club cards, my Medical Aid (a.k.a Health Insurance) gives me a card that I use when I buy from certain shops.  If I buy healthy food items then I get a percentage of the money I spent as cash in my bank account.

At this step, add the incomes you get that you don’t pay tax on, calculate the total income.

Monthly Personal Budget: Income after tax

Step 4:  Include routine “I have to pay this” expenses

Now we are going to add all your “I have to pay this” expenses to your budget.  These are the things that you have to pay in order to live in this world.  These items include:

  • Repayment of debt
  • Rent
  • Electricity
  • Water
  • Fuel
  • Travelling expenses
  • Homeowners Tax
  • Sanitation Fees
  • Bank Charges
  • Refuse Removal
  • Property Levy

There may be others, but this should give you a good idea of what type of items it includes.  Each person’s “I have to pay this” expenses will be different depending on your country and living conditions.  Teenagers may have no expenses in this category.

Calculate how much money you have remaining at the end of this step

Personal Budget: Have to pay expenses

Step 5:  List your routine “choice” payments

These are the payments that you don’t need to make in order to survive, but you have chosen to improve your quality of life.  These payments may include:

  • Medical Aid (a.k.a Health Insurance)
  • Gardener
  • Maid (or Domestic Worker)
  • Cell Phone
  • Life Insurance
  • Household Insurance
  • Vehicle Insurance
  • Internet

Whether you include these as choice payments or have to payments also depends greatly on your country and living conditions.  If you have bought a new car, then vehicle insurance may be a “Have To Pay” expense.

Calculate how much cash you have remaining at the end of this step.

Personal Budget: Choice Payments

Step 6: Create a list of luxury payments

Now you create a list of your luxury routine payments.  These are luxury items that will be the first to go in hard economic times.  These may include:

  • Video streaming services
  • Music streaming services
  • Magazine subscriptions
  • Beauty Salon treatments

Calculate how much money you have remaining at the end of this step.

Personal Budget: Luxury Expenses

Step 7: Divide what is left over

You’ll notice I haven’t mentioned anything about groceries, clothing, savings and spending allowances yet.  This is because you need to get a clear idea of how much money you are spending on routine payments.  You need to see how much income is left over before you know how to allocate to these things.

I allocate 30% of cash remaining to savings and 70% to groceries.  At the end of the month, if I am under budget for groceries, then that becomes my personal spend for the following month.

In my case, groceries also includes the needed clothing items.  For example, my son had outgrown his winter pajama’s and I needed to buy at least 1 pair of new pajamas for him.  This came out of the grocery budget.

The lowest I suggest for savings is 20% of remaining money, and maximum for groceries is 80% of remaining money. 

If your grocery budget is too low, then you must cut back on Luxury expenses until your grocery budget is livable.  If you have no luxury expenses, then you need to cut back on choice payments.

If you still don’t have enough, then you need to find ways to cut down on your “Have to pay” items.  This may include moving to a smaller home or finding ways to lower your electricity and water bills.

Some advice about debt

 If you owe anybody money, then use the 20% savings at step 7 for debt repayment instead.

In times of economic crisis, the worst thing you can have is a debt you are charged interest on.  Get rid of debt as quickly as possible.  The emotional and mental stress relief will be worth it.

My husband and I made our last debt repayment in April 2017.  We are 100% debt free and plan to keep it that way.

Living within your means

I have noticed that far too many people live a high-status lifestyle.  They are more concerned with appearing wealthy than living within their means.

The happiest people are those who know who they are and accept themselves the way they are.  You will live a much happier life if you accept that we still live as peasants, merchants, lords and ladies.  Know which one you are, and adjust your expenses accordingly.

If you work for a boss, you are a peasant.  If you work for yourself (with maybe a handful of employees), you are a merchant.  If you have large numbers of people working for you, then you are a lord or lady.  Don’t try to live the lifestyle of a lord or lady if you are a peasant or a merchant.

This may sound harsh, but you will save yourself from endless stress and disappointment if you come to this realization now.

The Personal Budget Routine

Once you have set up your budget for the first time, you need to add some simple tasks to your routines to maintain your budget.

Monthly Routine: Create a budget for the month

Even if you earn weekly, most payments are made monthly.  Create your budget for the upcoming month on the last day of the month.

I copy my budget and make adjustments as necessary on the last Saturday of the month.  An adjustment that I made between April 2017 and May 2017 was to exclude debt repayment because we paid off our debt in April 2017.

My budget has 3 columns:

  1. Description of expense/income
  2. Budgeted amount
  3. Actual amount

The description of expense and budgeted amount I create during my monthly budget routine.

The actual amount I fill in during my daily budget routine.

Daily Routine: Update your budget

Your aim is to look at your bank account daily and update the actual amounts in your budget.  Everyone will miss a day here and there but aim to do it every day.

If you update your budget every day it will only take 5 minutes.  If you do it once a week it may take you 30 minutes.

Know how much money you have in your account at all times.  If you know this you can confidently say “No, we can’t afford it this month” or “Yes, we’re under budget we can do this.”

The actual amounts are the exact amounts of money you have spent on the expense or the exact amount on income you received.  For examle, you may budget 100.00 as your interest income, but the interest rates were good this month so you got 110.00 as interest income instead.

There you have it.  This is what I do to create and maintain my personal budget.

Please leave any questions in the comments below and I’ll get back to you as soon as possible.


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