The Secret to Making a Personal Budget (Part 1)

To make a dynamic personal budget, start by getting a solid handle on your income and expenses. 

For most people, their amount/level of their income and payment frequency is relatively straightforward. If you earn a fixed salary and overtime, you can gauge your regular (continuing) income (salary) and overtime based on the extra hours you expect to work.

Then there are your costs and expenses. 

There are three types of expenses: fixed, periodic and variable.

• Fixed expenses are a set amount and typically occur every month. Examples include rent or a mortgage payment; a car loan or lease payment; and utilities. For electricity for example, typically the monthly amount is constant, although the can be some variability due to seasonality. You might use more electricity in the summer if you run an air conditioner; or more in the winter if you have electric heat.

• Periodic costs are expenses that are due throughout the year but not every month. Examples include back-to-school clothes, water bills, Christmas gifts, etc. Periodic expenses tend to be fixed amounts or within a range.

• Variable expenses include discretionary expenses. Mostly this is entertainment and leisure spending. People have the most control over variable or discretionary spending.

Get handle on your income and expenses and subtract: income minus your expenses. Increase your income and rearrange your expenses so you earn more than you spend.

For more information about how to make a personal budget, click here.