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The old in and out
It seems like budgeting would be a built-in human skill like breathing, because for most of us it's nearly as important. But it's not, and an alarming number of people never really learn how to manage their own finances. If you're floundering, it's time to learn the basics before you actually drown in debt. The first rule is pretty simple: Income must be greater than output. Unless you know exactly what's coming in and exactly what's going out, you can't even begin to budget properly. Establishing a personal budget template to help you track your expenses is an important step in managing your household finances.
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Types of expense
First, you'll need to list all of your normal expenses and group them into categories. Mandatory expenses include things like mortgage, utilities, car payment, insurance, and taxes. One mandatory expense that is often overlooked is retirement savings. Even if you have plenty of time, it's crucial to save money as early as possible to allow time for invested growth.
Discretionary income includes cable TV, gym memberships, clothing expense, dining out, and other things you could do without if you absolutely had to. Most people spend far more than they think they do, so tracking monthly expenses will help. Be sure to include a field for pocket money, because the devil is often in the details – a few dollars here and there for a soda or a pack of cigarettes can add up to a potential new car payment by the end of the month. Many a budget is sunk by incidental daily expenses that people don't even realize they are spending.
Income should include any reliable source of income that comes in every month, but be careful about averaging in any amount that comes in sporadically or is huge one month and tiny the next. An average will work if you have plenty of money in the bank, but if money is tight, averaging will bring you up short on lean months. It's better to budget for the lowest amount and save the overage on good months. A good personal budget template is more practical than optimistic.
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To best manage your income, divide your income by pay increment, weekly, bi-weekly or monthly, whenever the money comes in to your household. For example, in a household with a monthly income paid in weekly increments of about $930 and monthly bills (including planned savings) totaling $3,000, the best budget solution is to divide the bills so you pay a maximum of $700 per week, leaving an excess amount of $230 for groceries, gas and incidentals. Figure a food budget and a daily personal budget and put any remainder into a household slush fund.
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Free Personal Budget Templates
If you don't have any experience with setting up your own personal budget template using this advice, Microsoft.com offers templates that you can download for free. A little customization will be necessary to tailor it to your specific needs, but the templates are set up to be easy to use and understand.