How to Create a Successful Personal Budget in 3 Simple Steps
By: Jetseed, Ex-Pettysave
Tags: Pettysave, Money Management, Fintech, Budget, Budgeting

How to Create a Successful Personal Budget in 3 Simple Steps

Spending money is easy but budgeting your money and sticking to it is not the easiest thing to do. So, in this post, I will show you how to create a successful personal budget and also give you tips on how to follow the plan you make.

What is a budget

Why budgeting is important

How to set up a budget in 3 simple steps

Tips on how to follow a budget

What is a budget?

Simply put, a budget is a plan for every fund available to you for a specific period of time.

“An unplanned life is a chaotic one.”

Why budgeting is important

There are many advantages to budgeting. Here are some key ones:

1. Measure your finances

When you budget, you are able to plan and gain clarity on where you are financially compared to where you want to be.

2. Have a clear plan towards your financial freedom

Budgeting helps you to properly outline the steps you need to take to become financially independent.

3. Maintain financial discipline

If you budget and stick to it, you will attain a level of financial discipline that helps you manage your money better and build wealth consistently.

4. Track your financial goals

By creating a budget, you can easily set, plan towards, monitor and meet your financial goals.

5. Develop good financial habits

When you work with a budget, you are able to build good money habits that help you grow and protect your funds in the long run.

6. Make relevant spending changes

Creating and working with a budget helps you know where and when to make changes to your spending habits.

7. Prevent wastage

Budgeting enables you to detect areas of wastage so you can block them quickly and efficiently.

8. Help you stay in control of your finances

When you set up your budget, you are able to adequately manage your money, identify where it’s going and get it working for you.

A budget helps you to stay in control of your money

9. Monitor your financial records

With a budget, you can keep track of all your spending, observe your money habits, spot areas for improvement and make the needed adjustments.

10. Know where all your money is going

Budgeting enables you to plan what your money is being spent on so you never have to worry about where all your money is going again.

READ: Saving and Investing for Beginners

How to set up a budget in 3 simple steps

1. Figure out and calculate your monthly net income

The first thing you need to do is to find out how much you have to actually budget. This will help you put your actual income into perspective so you can plan accordingly.

So before creating your budget, you need to add up everything that makes up your income so you know how much you have to allocate. The total amount you get after adding everything up is your gross income.

Now, your income includes but is not limited to:

Your salary or allowance

Money you make from side hustles

Money gifts from friends and family

Interest on your savings

Returns on your investments

To make accurate projections, it is important to know exactly how much you have to budget

To calculate your net income, you will need to subtract taxes, pension and other recurring deductions on your account from your gross income. Here is an easy formula to use:

Net income = Gross income — (Tax + Pension + Other recurring deductions)

Meanwhile, please note that money you are expecting to receive does not count as income and thus should not be added to your income.

Always remember, it does not count until it is in the account.

2. Have a budgeting style

There are many budgeting formulas out there but before you start allocating your funds, your budget plan must cover the following:

Needs

Wants

Savings + (Investments and Debts)

A simple and generally accepted method for budgeting is the 50/30/20 rule. Where needs take 50%, wants take 30% and savings + (investments and debts) take 20%.

Needs — 50%

Needs are compulsory and must-do items majorly. They include things like:

Bills (Electricity, water, data, airtime etc.)

Needs take up a huge chunk of your budget

Transportation (Fuel for your car, money for public transportation or even an uber)

Feeding (Stocking your house with food items or eating out)

Toiletries (Tissue paper, toothpaste, bathing soap, washing soap etc.)

Insurance (Life, car, business, job, burglary or other forms of indemnity)

Childcare (For your child, children or wards)

Housing (Rent, maintenance, renovation, service charge etc.)

That’s a lot right?

Well, that’s why half of the income is dedicated to this aspect.

Wants — 30%

While we all want to be financially disciplined and plan for the future, we must not also forget to live in the present.

And this is where ‘wants’ come in.

Now, wants are the things you add to the budget to indulge yourself as the one who worked for the money.

Like the saying goes, all work and no play…you know the rest.

Your wants include things like:

A dinner outing with bae

Doing things for yourself and the people you love — no strings attached — is good for your mental health

Gifts for your loved ones

A well-deserved vacation

New hair or gadget

Entertainment 🍻🎶🍲

Savings + (Investments and Debts) — 20%

You can save and invest for:

Emergencies (Health, accident, theft etc.)

Life Goals (Wedding, education, real estate, business, etc.)

Short term goals (Car, Clothes, Shoes, Bags etc.)

For your future to be better than your present, you need to plan for it . Therefore, 20% of your income should be saved, invested and also put towards servicing any loans you may have. You can use Jetseed to save and invest securely and with ease.

3. Track your achievements

You need to evaluate your budget and your goals regularly to know how well you are doing and where changes need to be made.

You can do this by getting and looking through your bank and finance app statements or activity log. You can also try writing, using a task tracker or your notes app to log your spending.

You should assess your budget every month end and then use that information to plan your budget for the following month.

That way, you’ll know where all your money went per time, exactly how much you spent on what, places you overshot or disregarded your budget and ways to optimise your budgeting process.

READ: How to budget when you are in crisis mode

Tips on how to follow a budget

Now, you’ve done all the heavy lifting of calculating and budgeting your income. That’s out of the way now.

However, after creating a budget, many of us still struggle to follow through with it.

So here are some tips to help you stick to your set budget and make it a successful one.

Automate your savings with Jetseed Determine your investment options beforehand Track your daily spending Lock your savings plans Have enough cash in a flexible account

Happy budgeting and cheers to your financial freedom!