In the world of personal finance, a budget is simply a list of planned expenses and income. The purpose of a budget is to forecast monetary income and outflow in order to facilitate financial planning. A typical family budget will list all income, routine and regular savings, and expected expenses, including repayment of debts when necessary. Several common tools for budgeting exist, but in reality, little more than a pencil, paper, and a desire to stick to a plan are necessary. Sure, you can spend $200 on fancy budgeting software, and it may help, but it isn’t required. Software will do you no good unless you stick to the budget that you create for yourself.
Common categories to find on a personal budget include: net income; housing (mortgages and rent); food; automobile; insurance (home and auto); debt repayment (consolidation and personal loans); recreation / entertainment; clothes; contributions to savings (401k and bank savings accounts); medical / dental (insurance and co-pays); school / childcare; charity / religious donations; and miscellaneous. Experts suggest that about 10% of a family’s total income should be spent on retirement savings, and another 10% on long-term savings (to be prepared for unexpected expenses). Typically, budgets are established for a monthly period because most routine charges are likelt to occur on a monthly basis. Most initial budgets are fairly inexact. It’s OK to make necessary changes. No one has a crystal ball. Future revisions should be made to reflect wage increases, new expenses, or overlooked common expenses. However, the single most important thing to do with a budget, as already stated, is to stick to it.