People, groups, and companies operate under limited resources which require them to allocate the resources to the operational needs. To ensure that the scarce and limited resources meet the organizational or individual needs, heavy planning is involved. The planning is informed by the needs, which leads to the expenses and the income, referred to as budgeting (Rochard, 2020, pp. 15). Creating a personal budget is an important learning process that plays an important role in helping a person understand individual finances. There are significant differences between personal and organizational budgeting. This paper aim at demonstrates how a personal budget is developed.
The budgeting process at a personal level is not complicated except for beginners. The process requires an understanding of the personal expenses and the financial information that allows a person to budget within their financial capacities. Thus, in the creation of a personal budget, an individual begins by gathering financial information. It includes gathering financial paperwork, including pay slips, bank statements, utility bills, credit card bills, and other expenses (Rochard, 2020, pp.43). It provides an individual with income and expenses information which is vital in the decision-making process. The data is historically based on past costs and income from past wages. Thus, I began by accessing my financial information from the past three months, which included the income slips, my credit cards, tax requirements, and other expenses.
The following level requires an individual to calculate income. Income is calculated using the regular paycheck or return from an investment where the taxes are deducted, which means that the remaining amount is the net income which is the amount of money an individual has for personal use and investing purposes. Expenses become an area of interest after defining the net income. Thus, a list of the expected expenses incurred during the month is developed (Kobliner, 2009, pp. 27). The expenses vary depending on individuals but might include personal care, car payments, groceries, insurance, utilities, entertainment, rent/mortgage, and much more.
It is vital to identify the fixed and the variable expenses. The fixed costs are the preset costs such as rent, insurance, car payments, loans, and taxes. The variable income might be recurrent, but the value of the expenses changes from one month to another depending on the consumption quantity and the change in prices. The expenses include costs such as food, personal costs such as clothing and hair, and much more.
The total expenses and income are tabulated and compared for decision-making purposes. If the income exceeds the expenses, one can use the extra income as part of savings. However, if the expenses exceed the income, it means that the person is operating in credit every month or is not in a position to meet the expenses (Febriana et al., 2021, pp. 134). The actual costs of variable costs can only be recorded at the end of the budgeting process, while the actual costs of fixed costs can be recorded at the beginning of the month as it is not expected to change.
The following is an example of my monthly budget. Some of the information is based on real experiences, especially with expenditures. However, some of the information is such as that of the income is made up. Thus, I have used two sources of income with the assumption that I am working two jobs. From the two jobs, I am making an estimated gross income of U.S $6625.50; after taxes, I have a net income of U.S $ 6300.5. My monthly expenditure is calculated based on the goods and services I incur every month and can be grouped based on area or function, such as housing needs, personal care, food, pet, and entertainment which all sum up to U.S. $ 5487.
The projected balance for the month is U.S. $ 813.50. The money is expected to go to savings. The budgeting process will be continuous during the month, and I believe that I will be able to fill in the actual costs and the difference that will arise between the actual and projected costs.
Conclusion
Creating a personal budget is key to understanding and controlling individual finances. Like a business budget, a personal budgeting process is continuous. Thus, in our case, the information on the actual cost can still be recorded within or at the end of the month, and the difference can be between the projected be compared. Preparing a personal budget requires understanding personal financial requirements, including income and expenses. A personal budget can also take many forms based on individual preference. The budgeting process is a fundamental financial discipline activity that can help in developing effective financial discipline that can play a part in growth and development.
Reference List
Rochard, M., 2020. Personal Finance QuickStart Guide: The Simplified Beginner’s Guide to Eliminating Financial Stress, Building Wealth, and Achieving Financial Freedom. ClydeBank Media LLC.
Kobliner, B., 2009. Get a financial life: Personal finance in your twenties and thirties. Simon and Schuster.
Febriana, H., Irnawati, J., Anismadiyah, V., Rismanty, V.A. and Suryanto, W., 2021. Personal Financial Planning. Jurnal PADMA: Pengabdian Dharma Masyarakat, 1(2).
write