APEX BUSINESS AND MANAGEMENT CONSULTANTS LIMITED

HOW TO MAKE A PERSONAL BUDGET

GRACE BWALYA SIKAZWE

NEWCASTLE UPON TYNE, 2019

Abstract

A personal budget or household budget is a finance plan that allocates future personal income
towards expenses, savings and debt repayment. Past spending and personal debt are
considered when creating a personal budget. If you are hoping to gain more control over your
spending and begin working towards your financial goals, you need a budget. You can use a
budget as a tool for achieving your financial goals. It is not the amount of income you earn but it
is about fitting your expenditure into your income. The famous saying goes "living within your
means".

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 1. Introduction
Budgeting lies at the foundation of every
financial plan.1 It does not matter if you are
living paycheck to paycheck or earning six-
figures a year, you need to know where
your money is going if you want to have a
handle on your finances. On the surface it
seems like creating a budget is just a
tedious financial exercise, especially if you
feel your finances are already in good order.
But you might be surprised at just how
valuable a budget can be.
Unlike what you might believe, budgeting is
not all about restricting what you spend
money on and cutting out all the fun in your
life. It is really about understanding how
much money you have, where it goes, and
then planning how to best allocate those
funds.
Thus a good budget can help keep your
spending on track and even uncover some
hidden cash flow problems that might free
up even more money to put toward your
other financial goals.2
2. What is a personal budget?
Brookson (2016) defines a personal or
household budget as an itemized list of
expected income and expenses that helps
you to plan how your money will be spent
or saved as well as track your actual
1 simply compulsive debting.
https://www.scribd.com/document/82752000/Bud
geting-Lies-at-the-Foundation-of-Every- Financial-
Plan
2 3
https://www.budgetingincome.com/10-benefits-
of-budgeting-your-money/
2
spending habits. Though the word budget
has taken on a more negative connotation
over the years invoking an image of
pinching pennies or limited spending, a
budget is really just a tool to gain better and
more accurate insight into your spending
habits.
It should also be borne in mind that while
one budget might be right for one individual
or family, that same budget may not work
for another. No two individuals or two
households are the same because everyone
has different financial goals in their life.
3. Spending Habits
A habit is an acquired behavior pattern that
is followed so regularly it is almost
involuntary.3 Examples of spending habits
might include going on a shopping spree
right after you get your pay check. There is
no planning involved and this is done on
impulse and you pay little attention to how
you will survive in the future. Soukup (2014)
points out that extreme spenders can end
up hitting a financial crisis later in life as
they desperately resort to expensive
solutions to meeting their financial needs.
For instance, these solutions can include
turning to payday loans, bank loans, credit
cards, pawning personal items etc. and this
behavior done repeatedly can easily end
consumers into debt traps/addictions or
http://www.dafresco.org/index.php/what-
compulsive-debting/
Research has found that compulsive
debting is a disease that never gets better,
only worse, as time goes on. It is a disease,
progressive in its nature, which can never
be cured but can be arrested.4
There are signs of compulsive debting that
should help one to know if they have a
problem and these include the following:
 Not keeping track of bills or account
balances
 No budget is designed to meet monthly
expenses
 No savings plan for large purchases
 Cannot resist a shopping deal even
when one does not need the item
 Paying one credit card with another
credit card
 Getting cash advances to cover for
cheques drawn on a bank account
 Borrowing money without considering
the interest rate and how much paying
it off will actually cost
 Losing sleep worrying about debt
 Taking to alcohol or drugs to avoid
worrying about mounting debt
 Coming up with a budget but not
sticking to it
Falling into bad spending habits and
attitudes (Habitudes) is easy but breaking
them can be really hard. An important part
of forging better money habits is not just
understanding what you spend but why you
spend the way you do. After all, you cannot
change what you do not understand.
Money habitudes help people understand
4 save-money/
https://www.moneyhabitudes.com/
3
their money habits and attitudes by
reviewing how they spend, save, invest, go
into debt, and give to others and so on.5 It is
also nonjudgmental; many people are
reluctant to confront their money history
because they are worried about being
judged or judging themselves.
4. Why is it hard to break spending
habits?
Over time, it becomes more and more
difficult to change a habit because that
habit has become more and more natural
to who we are and how we act. According
to McGonigal (2012), we automatically
favor what is familiar to us even if we know
it is not to our benefit. The challenge is
creating a new normal, which involves
behavior change.
Saving money has little to do with personal
finance or how well you budget. Saving
money is about changing spending habits
into saving habits.6 When you focus on
changing the little every day spending
habits that allow your money to leak out of
your wallet, your bank balance will
automatically be healthier at the end of the
month. Otherwise you can have the best
intentions and the most sophisticated
budget in the world and still overspend.
5. How to create good spending habits
5
https://www.msn.com/en-us/money/credit/heres-
what-happens-to-credit-card-debt-after-death/ar-
AADzMhrN
6
https://www.youngadultmoney.com/habits-to-
Cagan (2007) proposes the following ways
of helping you develop good spending
habits:
a) Set Long-term Goals
Do you find yourself blowing big cash on
small purchases like coffee and vending
machine snacks? Here is a simple way to
crush the habit - Pick something that you
really want, for instance:
 A vacation
 A car
 A fat emergency fund
 Electrical good for your house (fridge,
cooker, washing machine, dish washing
machine etc.)
 Getting out of debt
You can choose to remind yourself of this
goal each time you feel tempted to blow
money on a non-essential. Then, take the
money you would have blown, and put it
towards your goal. Breaking habits that
make you incapable of meeting your
essential needs could be so rewarding.
b) Distinguish Between Needs and Wants
If you spend impulsively, one of the first
habits that can be really useful is asking
yourself “do I really need this or I just want
it”? Asking yourself this vital question every
time you go to buy something makes you
aware of your spending, it eventually
becomes conscious act.
c) Shop with a List
Fortunately, there is an easy fix for this
common spending trap: shop with a list. Jot
down everything that you need from the
store, then only shop for the items that are
on your list. Tempted by something extra?
Then, make a note to add it to your next
shopping list.
d) Give Yourself an Allowance
Look at your budget, and decide how much
money you can afford to blow each week.
Then, withdraw this amount from your
checking account at the beginning of the
week, and spend guilt-free. Just remember:
When the money's gone, the spending
stops. No exceptions.
e) Shop without a Cart
Have you noticed how big shopping carts
are? They are designed to keep you
shopping! Avoid this clever spending trap by
only taking a cart when you have a lot to
buy. Otherwise, grab a shopping basket or
carry your items. You will be less tempted
to shop when you do not have anywhere to
put your selections. It takes a lot of
discipline.
f) Let Someone Else Shop for You
Are you looking for an easy way to break
your spending habits? Let someone else
shop for you. Make out your shopping list,
and then hand it off to someone you trust.
You will not be able to add impulse items if
you are sitting at home.

Ever gone into a store for a few items, and g) Survey Your Selections
emerged with bags and bags of stuff?
Before you head to the checkout line, take a

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minute to look at your selections. Do you
need everything that you are about to buy?
Are there items that you should put back or
think about for next time? Keep editing
your selections until you feel good about
them. Then, check out with a clear
conscience.
h) Avoid credit/debit card abuses
Swiping plastic has become incredibly easy.
With both credit cards and debit cards, we
can be in and out with a purchase in a
matter of seconds. Unfortunately, this
convenience comes at a cost. By using
plastic we can begin to lose track of how
much money is actually being spent. You
can avoid this pitfall by either using cash or
sticking to your shopping list.
Everyone wants to cultivate better money
habits, but people often forget that
spending habits are just that:
spending habits. Spending habits cannot
simply be wished or scolded away.7 They
can be treated with a disciplined,
scientifically based plan. They cannot be
cured but they can be controlled.
According to Sethi (2009), you can create
better spending habits by:
 Giving yourself a solid reason to spend
wisely
 Understanding your spending triggers
 Tracking your spending
 Delaying impulse shopping
7
https://www.psychologytoday.com/us/blog/the-
science-behind-behavior/201803/4-steps-cultivate-
the-habit-saving-money
5
 Sticking to cash and stopping to rely on
Credit Cards
 Setting short term Financial Goals
 Learning how to Budget Money i.e.
saving up for big purchases
6. Why is it hard to break spending
habits?
Over time, it becomes more and more
difficult to change a habit because that
habit has become more and more natural
to who we are and how we act (Levenson et
al 2014 ). And research shows that we
automatically favor what is familiar to us
even if we know it is not to our benefit. The
challenge is creating a new normal, which
involves behavior change.
Saving money has little to do with personal
finance or how well you budget. You can
have the best intentions and the most
sophisticated budget in the world and still
overspend. Saving money is about changing
spending habits into saving habits (Bach
2016).
Sutton (2012) observes that when you focus
on changing the little every day spending
habits that allow your money to leak out of
your wallet, your bank balance will
automatically be healthier at the end of the
month. It is vital to build your financial
know-how. When it comes to your money,
a little knowledge can go a long way.
7. The Budgeting Process
Completing Your Monthly Budget
Worksheet
This involves an itemized summary of
expected income and expenses.8 To
achieve this, you need to complete your
monthly budget worksheet provided in
Appendix A and following the steps below:
Step 1: You need to gather all relevant
financial data like your bank statements,
pay stubs, credit card bills, and any other
information that will inform the best and
most accurate estimate of your expected
income and spending.
Step 2: Complete the "Monthly Budget
Amount" column to the best of your ability
for the next month. These should be your
best, informed estimates. Should a certain
category not apply to you, you can simply
leave it blank or enter a zero (0) in the box.
Step 3: Over the course of the month, track
your income and spending.
Levenson et al (2014) and Toussaint (1999)
explain that should you find that at the end
of the month that you are consistently
spending more than you are bringing in, it
might be time to take a closer look at where
you are spending your money and adjust
those areas you can to make up the
difference.
Should you find, on the other hand, that
you consistently have money left over every
month, you now have the opportunity to
decide what to do with that extra cash. Do
you need to build up an emergency or
"rainy day" fund? Could you be contributing
more to your retirement savings? Could you
pay certain loans off faster? Or perhaps you
would like to save up for a special or large
purchase.9

Step 4: At the end of the month, complete

the "Monthly Actual Amount" column and
compare it to your original estimates. Check
the results by line of expenditure.

 Example: Did you overestimate how

much you would spend on clothing, but
underestimate the amount you would
spend eating out? Record the
difference.

 Though you do not need to go through

this exercise every month, it is
extremely helpful at the start as it helps
you to develop the most accurate
monthly budget you can keep polishing
up as you are moving forward.

8. Important Note:

8
https://www.thebalance.com/basic-monthly-
9
budget-worksheet-1289585 https://help.everydollar.com/s/article/does-
leftover-money-carry-over-to-the-next-month

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 9. Conclusion
If you are hoping to gain more control over your spending and begin working towards your
financial goals, you need a budget. Since budgeting allows you to create a spending plan for
your money, it ensures that you will always have enough money for the things you need and
the things that are important to you. When it comes to your money, a little knowledge can go a
long way, and as such, it is vital to build your financial know-how.

While the word budget is often associated with restricted spending, being a miser or being tight
fisted, a budget should really mean more efficient spending. Therefore, instead of viewing a
budget as a negative, you can use it as a tool for achieving your financial goals. The hardest part
of creating a budget is sitting down and actually creating one. And while one budget might be
right for one individual or family, that same budget may not work for another as
individuals/households have different financial goals. However, once you have taken the time
to create a budget, now it is time to make sure you implement it.

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 Appendix A

Monthly Budget Worksheet

Net Income Worksheet: Gross Income

Monthly
Category
Amount
Wages, Salary, Bonuses x
Interest Income x
Investment Income x
Other Income (e.g., child support, alimony) x
Total (A) xx

Net Income Worksheet: Taxes Withheld and Paycheck Deductions

Monthly
Category
Amount
Personal taxes - Pay As You Earn x
Personal Levy x
National Pension Scheme x
Employer Health Insurance Premium x
Employer Retirement Plan Contribution x
Other x
Total (B) xx
NET INCOME A-B x
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 Categories of Expenses
Monthly Monthly
Home Budget Actual Difference
Amount Amount
Mortgage or Rent
Council Tax
Homeowner’s or Rental Insurance
Property Taxes
Home Repairs/Home Maintenance
Home Improvements
Utilities
Electricity
Water/Sewer
Natural Gas or Oil
Telephone/Data Plan
Cable TV/Internet
Food
Groceries
Restaurants / Fast Food
Coffee / Beverages and other Drinks
Family Obligations
Child Support
Alimony
Daycare / Babysitting
Activities / Lessons
Domestic Helper wages
Education
Tuition and exam fees
Extra tuition
Accommodation
Textbooks / Study Modules/Stationery
Other School Supplies
Health and Medical
Prescription and OTC Medications
Medical Bills
Fitness (e.g., Personal Trainer, Gym)
Transportation
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Car Loan / Lease Payments

Car Insurance
Fuel
Car Repairs / Maintenance/ Fitness/Road Tax
Public and Other Transportation
9 Other Expenses (tolls, parking , car wash)

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 Monthly Monthly
Categories of Expenses Budget Actual Difference
Amount Amount
Debt Payments
Credit Card Payment
Student Loan Payment
Other Loans
Entertainment / Recreation
Computer Expenses
Subscriptions and Dues
Hobbies
Vacations / Travel
Other Entertainment (Movies, Sports etc.)
Pet Care
Pet Food
Grooming, Boarding, Veterinary
Personal Care
Toiletries / Cosmetics
Household Products
Clothing, Hair
Other Personal Care
Savings and Investments
Retirement Accounts (not deducted from paycheck)
Brokerage Accounts
College Fund
Savings / Emergency Savings
Expenses Worksheet: Miscellaneous
Gifts/Donation
Other Miscellaneous

Monthly Monthly
TOTAL EXPENSES Budget Actual Difference
Amount Amount
All Categories xx xx xx/(xx)

Monthly Surplus or Shortage

Total Monthly Income: xx
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Total Monthly Expenses: xx

Total Monthly Surplus or Shortage (Income Minus
xx/(xx)
Expenses):

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 References
1. Bach, D. (2016) The Automatic Millionaire: A Powerful One Step Plan to Live and Finish
Rich. 3rd ed. United States: Crown Business.
2. Brookson, S. (2016) Managing Budgets. UK: Prentice Hall.
3. Cagan, M. (2007) The Everything Accounting Book. USA: Adams Media.
4. Levenson, N et al. (2014) Spending Money Wisely. UK: Prentice Hall.
5. McGonigal, K. (2012) The Willpower Instinct. New York: Penguin Group
6. Sethi, R. (2009) I Will Teach You to be Rich. New York. Workman Publishing
7. Soukup, R. (2014) Living well, spending less: 12 secrets of the good life. TX: The Fedd
Agency.
8. Sutton, G. (2012) The ABCs of Getting Out of Debt. USA: RDA Press.
9. Toussaint, E. (1999) Your Money or Your Life. London: Pluto Press.
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