How to make a personal budget in 7 simple steps

The things in life that are truly good for you are rarely smothered in melted

cheese or chocolate. That is why budgeting is to your financial health what

low GI bran food is to your physical wellbeing… Dry and rather boring but

future you will thank you for it.

So if our top five rewards of living with a budget inspired you to take action,

this post is for you. In seven easy steps we want to help you create a budget

that will not only help you get a bird’s-eye view of your financial situation but

also assist you in making more clever choices going forward.


A budget is all about facts and therefore you will need all the recent monthly

statements and slips you can get your hands on.

Also get a black, red and blue pen, a pencil, highlighters, a calculator, an

exam pad and everything else you think you might need. You can write your

budget down on paper or use a computer programme. This is your budget,

work with the method you prefer.

Now examine your statements and slips. Use your pens and markers to

highlight and identify each expense.


Write down the amount of money you receive every month. Your salary and

any extra money you might earn from freelance work, child support, a part-

time job etc.

If this amount fluctuates every month, work out what the lowest feasible

average is and use that.

Important: Should you earn more than your lowest feasible average in any

given month, it is essential to put the difference away in a savings, just to be



On your exam pad, or on an Excel spreadsheet, create two main columns,

“Spending” and “Saving”.

Under the “Spending” section list the things you spend your money on starting

with all the fixed expenses like home, car instalment, insurance, medical aid

etc. and add each of their totals.

Then list all the totals of all your variable expenses like petrol, water and

lights, food, clothing, entertainment etc. and add each of their totals.

Tip: While you complete this step, make stars next to the areas where you

think you will be able to cut back on.

After you have listed all your spending, turn to your saving column and list all

the money you are currently putting away every month.

If you don’t have any savings yet, don’t be alarmed. That is exactly the reason

why you are creating this budget.

Remember: Your “Saving” column is far more than just the money you are

able to put into a Savings Account every month. It forms part of the greater

financial goals you have set for yourself and requires a proper savings plan.


Now that you have all your monthly expenses listed, it’s time to do the math.

Tally up both columns and add them together.

Now, subtract this amount from the amount you indicated as your lowest

feasible income.

What do you have left? A little? Nothing? Did you go into negative digits?

Every month brings with it a series of unforeseen expenses and that is why

the amount you are left with every month after all your spending and your

saving have been accounted for should be more or less 10% of your income.

This will prevent you from living from payday to payday and allow you some

wriggle room.

TIP: Should you reach a new payday with money left over from the previous,

you don’t have to spend it. Put it in your savings and reach one of your short-

or medium-term goals that much sooner.


There is always room to cut back on your expenses, even if your balance in

Step 4 looked good.

Revisit your “Spending” column and look at all the areas you have added

stars to. What is the realistic amount you can cut back on each of these?

Could you perhaps stop a specific purchase altogether i.e acrylic nails, your

daily take-away coffee? Amend the totals you are able to bring down.

Now look at the other areas. Are there any luxuries camouflaged as

necessities i.e. satellite television, cute but expensive clothing for your


If you don’t have any money left after all your expenses have been paid, or

you are overspending every month, you have no choice but to start cutting

back drastically.

Tip: A handy tip when looking to cut back is to multiply a specific monthly

expenditure by 12 and see what your annual spend on it is. A monthly R250

on a nice-to-have item hardly sounds indulgent, but how does R3 000 per

year sound?


Amend your budget according to the cut backs you were able to make in Step

5 and re-calculate.

How much do you have left now? Keep going back and forth between Step 5

and Step 6 until you reach a point where you can put something into a

savings plan while still leaving more or less 10% of your income in your

cheque account.

Congratulations you are now the owner of a budget! Print your budget out or

make several copies of the hard copy.


Although a budget is your go-to guide when making any purchase

whatsoever, it is never a completed project. And it shouldn’t be. The moment

you earn additional income or have paid off one of your instalments, the first

thing you have to do is amend your budget to tell this extra amount where you

want it to go.

The same goes for any unforeseen expenses or emergencies that may have

depleted your account and forced you to take money out of your savings or

credit card. The moment this happens you have to go back to the drawing

board and adapt you budget so you can make up for this hiccup.

Next time we will look at the various warning signs indicating that financial

distress may lie ahead.

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