“Personal Budget” can be a scary phrase if you aren’t on top of it. However, obtaining financial success doesn’t need to be a fantasy.
If you are only new to adopting a personal budget it is likely you will have to face some initial obstacles. There isn’t much difference between a successful personal budget and a business budget with four main commonalities that will help you to get into the right mindset surrounding your budget.
- Cash Flow
- Cost Reduction
- Return on Investments
- Increasing Profits/ Revenue Streams
Thinking of your personal budget like a business budget is a powerful tool to assist in getting the absolute most out of your current position. You are always going to face budgeting issues as your circumstances are likely to change from month to month, but by understanding the likely hurdles you can become more prepared to overcome budget adversity.
Without further ado, I present 6 Personal Budget issues you need to be on top of:
1 Running Out of Money
I’m sure you can see how this could become an issue. Running dry before payday is an obvious symptom of not having a crystal clear picture of your numbers. This is where every good budget starts.
First and foremost you need to know exactly how much net income you are bringing in per month which can then be compared to your fixed monthly expenses. This will allow you to work out if you have enough income to cover all of your recurring bills. If the answer is no than you will need to take some affirmative action.
- Bring in extra income
- Cut back on outgoings
When widening the gap between income and expenses the easiest first step is to minimise outgoings. Bringing in extra income can often be more difficult so beginning with an audit and elimination of any expenses that aren’t crucial is a great way to free up some cash.
Once you have cut out the fat if you still are behind on your ideal financial position looking at potential sources of extra income is the logical next step. Monetising a hobby or taking on extra work are great ways to add more income.
2. Changing Income
When working out your personal budget a difficulty can arise if you have inconsistent income streams. A great workaround here is to build your personal budget around your lowest income month within the last year.
This allows you to cover all bases and will likely leave you with extra savings on top. If you have recent changes give yourself a few months to gain stability with constant tweaking until you can define your numbers.
Any extra income not accounted for can be put directly into bills or savings. If you budget around your highest net income period then you will likely be met with issues.
Once you have a workable baseline, start from the bottom up making sure you can easily cover all of your monthly essentials e.g transport, home expenses and recurring bills. If the numbers still aren’t adding up you need to either tighten the reigns and cut the non-essentials or find a way to increase your revenue.
3. Too Much Debt
Nothing puts a dampener on your personal budget ambitions quite like excessive debt that is draining all your income. Almost all budget issues can be drilled down to debt outweighing income.
This is a great article that may help get your debt under control using the highly effective “Snowball Method”.
If your debts are getting a bit out of control two options you could consider are:
- A credit card balance transfer
- A debt consolidation loan
The motivation behind this decision is to minimise overall debts and interest. Bringing everything together can be a very useful tool in helping you get on top of things.
The key, once you start to get things under control, is to not add any extra debts. Chop up your credit cards if you can, track all your expenses down to the cent and put every extra dollar towards eradicating “bad debts”.
4. Vague Personal Budget Categories
Poor organisation doesn’t just affect your ability to find your car keys. When it comes to a successful budget your categories can never be too specific.
A lot of us start with less than 10 broader categories like food, rent, bills and misc. But this can make it easy to lose sight of where our money is really going.
Narrowing down categories to be more specified like credit card, electricity, water, weekly groceries, leisure, clothing etc gives you a really clear understanding of where your expenses are coming from and therefore makes it easier to cut any excess.
Doing a monthly projection and then auditing against your actual expenses will help you to craft a greater understanding of your money profile and in time will have you well and truly on top of your budget and savings.
The majority of budget veterans will testify how much the smaller non-essentials can drain your wallet when not correctly monitored.
5. Using the Wrong Budgeting System
If you’re anything like me you love the feeling of a system that works. Budgeting is no different.
Finding a budget that works for you can be a little scary to newbies especially if numbers aren’t your forte’. There are numerous free budget resources online, ranging from excel templates to full-blown apps.
It really doesn’t matter what you go for as long you nail the main purpose of a budget which is being aware of where your money is going. If your budget is overwhelming, your chances of success are slim and you’ll end up back where you started.
Great Budget Apps:
Budgeting is one of those things that can be a bit of a headache to get started but it is well and truly worth it in the long run.
If your budget is looking on track and you are curious about property investment why not safeguard yourself on 3 mistakes that have undone many an investor.