Personal Finance: Creating a Budget
I thought that it would be a simple and straightforward thing to prepare my personal budget. While it was easy to register the monthly income and estimating other categories of income, computing the expenses was the most challenging thing (Freeman and Media, 2014). I had to review my budget several times before I was satisfied with the final budget. After entering the monthly income from my monthly salary and other expected incomes from parents and relatives, I started thinking of the items that involve fixed costs for instance, house rent, education loan, car insurance and the rest. Expenses of fixed cost items are relatively easy to identify because they constitute a monthly routine. I ended with estimating the monthly expense on non-fixed items such as expenses on personal expenses such as drinking with friends, movies, saving for vacation and recreation expenses. Before entering the expenses for non-essential items, I had set a goal of saving $250 for emergency purposes. Allocating for emergency expenses helps in catering for items that have not been considered in the budget, like unexpected medical bills (Kossman, 2013).
I also considered the miscellaneous expenses such as charities, cost of magazines and newspaper, and gifts to friend and families. These items are not constant for every month and can sometimes constitute a significant percentage of the monthly expenses (“Budget for Miscellaneous” 2014). While I tried to consider every item of spending, it was challenging to become overly thorough with the finer details of my spending, especially on miscellaneous items. I tried to accommodate every spending item within the expenses categories. When I changed my basic income to 10,000 per month, the tax expense increased considerably. I was however able to vary my spending by allocating for more money for personal entertainment expenses for instance recreational expenses and savings for vacation. In addition, I allocated more for other non-essential items such as cloths, and increased the target for monthly saving.
Challenges of Maintaining a Personal Budget
One of the biggest challenges in maintaining the budgets is being unrealistic with the spending items especially on items that constitute variable expenses. Being realistic means making the correct estimates for spending items, which makes it possible to attain the expected goals. Being unrealistic leads to an inefficient budget since the spending can be more than the income. For instance, while planning for the miscellaneous expenses, I had not factored in the car parking fees which accounts for $120 per month. Excluding such expenses may lead to unrealistic budget estimates (“Budget for Miscellaneous” 2014).
Another challenge is maintaining a positive attitude. This means that while it is possible to set goals in the budget, focusing on those goals is sometimes difficult. In order to avoid overspending, there are items of expenses that can be reduced without affecting the allocation for the essential items. To maintain a reduced spending on non-essential items is sometimes challenging. Another challenge in maintaining a budget is lack of motivation to follow the budget. The expected savings per month has a significant influence on our motivation to maintain spending as outlined in the budgets (Vohwinkle, n.d). Barnes (2014) indicates that, one of the reasons why people stop using personal budgets to guide their expenses is that multiple expenses that occur are not allocated in the budgets.
In conclusion, a good budget can seem to constrict on the needs of a person. However, it can be an effective guide when approached with an open mind and positive attitude. The motivation to maintaining a budget is the realization of the budgeting goals, which are most often, anchored on the ability of the budget to reflect the true spending patterns of an individual. A good budget can lead to lowering debt and increasing the amount of savings, which builds into a solid financial future. Being realistic on the amount to allocate for miscellaneous expenses and maintaining self-discipline in the spending behaviors are key to having a successful budget. Sticking to the goal of the expected amount of saving per month is another motivator to maintaining a personal budget.
References
“Budget for Miscellaneous” (2014). CBS News. Retrieved December 8, 2014 http://www.cbn.com/finance/crownmiscellaneous.aspx
Barnes, R. (2014). Top 5 Budgeting Questions Answered. Investopedia.com. retrieved December 8, 2014 http://www.investopedia.com/articles/pf/07/budget-qs.asp
Freeman, E. and Media, D. (2014). Steps top creating a personal budget. Budgetting.thenest.com. Retrieved December 7, 2014 http://budgeting.thenest.com/steps-creating-personal-budget-3431.html
Kossman, S. (2013). 8 Steps to Creating a Personal Budget. Daily finance. Retrieved December 8, 2014 http://www.dailyfinance.com/2013/10/18/8-steps-create-personal-budget-debt-family-money/
Vohwinkle, J. (n.d.). 3 traits for budgeting success. Aboutmoney.com. retrieved December 7, 2014 http://financialplan.about.com/od/budgetingyourmoney/qt/BudgetTraits.htm
