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Budgeting for personal expenses can be an effective way to manage money. It is a process that involves planning and determining how much of one’s income will be spent on different categories of personal costs. Budgetary guidelines are guidelines that provide assistance in the budgeting process, typically by outlining different budgetary percentages to use for each category of expense. The following article will cover why it is important to have budgetary guidelines, common budget categories, and if budgetary percentages are used in certain areas.
There are certain ways you can use budgetary guidelines to manage personal expenses, such as considering expenses as one lump sum or examining individual categories. It is important to use budgetary guidelines to have financial security and avoid overspending on items that are not essential for day-to-day life.
Below we will cover the best ways to use budgetary guidelines for managing personal expenses.
What is a Budget?
A budget is an estimate or plan for how someone’s money will be spent over some period of time, and this includes personal expenditures as well. The purpose of most budgets is to help with the financial planning of expenditures that can allow people to limit their spending so they do not go into debt. Additionally, budgets help save more money, prepare an emergency fund, and better manage both short-term goals (e.g., buying a house or new car) and long-term goals (e.g., retirement).
Budgets are also a good way how to teach teens about financial responsibility early.
Generally, developing a budget is based on budget guidelines, costs, objectives, expenditure data, programs, resources, and service levels for organization programs.
Budget guidelines can be used for the development of department objectives, programs, and services, but also for individual analysis on payments and accounting. You can use budget guidelines for research, performance, and related basic balance accounting. Managing your payments and particular accounts can help plan your basic expenditure costs for living.
What Does it Mean When You Say “Budget”?
It means there has been a decision made about what percentage needs to go towards different categories, which include housing costs such as mortgage/rent payments and more. A budget recommendation is a roadmap for spending.
Why Are Budgets Important in the Planning Process?
Budgets are useful in the planning process because they help you to prioritize what is most important to manage money wisely. When creating a monthly budget, it is best not to include any personal wants or needs not essential for day-to-day life.
For example, someone living without car insurance due to the cost of high monthly payments but now owns their vehicle should add this expense to their budget as an expenditure. Car insurance costs can average $150-$300 per month, so adding this amount into your budget will help you pay off debts faster and have savings since it was previously excluded from budgetary guidelines entirely.
Budgets are useful to examine whether there are ways of lowering the financial costs of items, such as by using less of a product or storing items in the freezer. You can also search and do research to determine if there are particular alternatives available with lower costs.
Budgets act as a roadmap that will help you explore your personal financial resources and make adjustments as needed in regard to cost and resources. Some personal budget methods may vary from person to person, but it is important to have one in place to get a good idea of where all of your financial costs are every month.
Budgets are also useful in the planning process for personal finances because they provide an organized system for planning long-term goals and objectives. This also goes along well with the budget by paycheck system.
What Are Budgetary Guidelines?
Budgetary guidelines are like a map to help you make the best financial decisions. You can use them for many different purposes, including motivating people to save more money or pay off debt faster, and they should not just be reserved for saving up an emergency fund.
Guidelines can be used to project fiscal department program costs and project revenue resources. Most budget guidelines for program departments operate on a fiscal year. Budget guidelines for expenditure budgeting can be presented in a number of different ways.
Budgetary guidelines got their start in mainstream society in the 1970s when a company called Family Support Services created them for their employees at their site. They were designed to help families get on a more solid financial footing and improve financial health by teaching budgeting skills and providing monthly budgets so people would know what they could expect in terms of outgoings each month, without any surprises.
While this had been common for revenue funding for department programs, using these budgeting resources for future personal project finance services was a new trend.
The three important guidelines in the budgeting process are:
- knowing your budgetary constraints
- writing out an actual budget with monthly and yearly goals for each category of expense
- sticking to the budget by putting it in a place where you can see it on a regular basis
The guidelines are typically based on five different percentages that apply to various categories such as housing costs or transportation expenses, with each percentage reflecting the portion of income it should take up.
There are also six budgetary levels ranging from poverty level (20%) to middle-class lifestyle (60%). The lower you go down this spectrum, the less money is available for other things like savings or debt repayment, which can lead to an increased risk of bankruptcy.
Did Budgeting Guidelines Start with Government?
In the 16th century England, people were taxed on their income and the amount they spent. Hence how budgetary guidelines came into play in terms of personal expenses; it was many years after the 16th century that the guidelines were used in the management of government expenses.
You may be wondering if public money and government budgeting guidelines fueled the applied use towards personal expenses. The answer to that is no. The government guidelines were a response to the management of personal expenses and costs in terms of debt which was growing at an alarming rate. It wasn’t until the 1930s when President Roosevelt called for citizens to live on budgets, where budgetary guidelines became more prevalent among consumers and businesses alike.
The 1970s saw many changes with regards to fiscal policies and budgeting practices both on the consumer and business front. Governmental efforts helped make budgetary guidelines popularized within society because individuals wanted their versions based on what they could afford financially to have a better chance of living comfortably without going into debt or risking bankruptcy. It allowed families to plan for the future costs and related tax, legal, and interest costs.
Why You Should Use Budget Guidelines
There are a lot of reasons to use budgetary guidelines. They can be useful in the planning process for personal expenses, not just office performance objectives. The development of objectives saves money by not overspending on expenditures and allows a person to plan out their monthly budget to know what to expect.
Following your objectives for your expenditures offer a way to look at your spending data, review your accounts and practice accountability. Guidelines also can help prioritize loan payoff whether it is an outstanding balance vs principal balance loan.
Many people don’t have budgetary guidelines set up because they feel that it’s too difficult or time-consuming and cannot dedicate the time needed to review the data. But with some organization on the front end, this task can become much easier than it sounds. A monthly review is more as basic consistent operating maintenance of your revenue and cash.
The benefits outweigh the work involved when using budgetary guidelines to manage your personal expenses, which is why someone should use them.
The biggest benefit of budgetary guidelines is that they can help a person avoid overspending on certain budget categories with budgeting tips and tricks, which will save cash in the long run.
What is the Difference Between Budget Categories and Budget Percentages?
Budget categories are budgetary guidelines that categorize your monthly expenses. You can use budget percentages for certain budget categories, usually the housing and utilities category. The budget percentages and budgetary categories make up the budgetary guidelines.
A person might decide as part of the budgetary guidelines they want to spend a maximum of 30% on housing and utilities. It is well known that this will leave enough money for other necessary expenses like food, clothes/shoes, etc., transportation, and entertainment/recreation.
The percentage may vary depending on how much you make in comparison to what these items cost per month or if you have any debts (credit cards) to pay off every month as well. Percentages can help know how to repair your credit yourself.
A person’s financial situation varies greatly from another’s, so there isn’t one set rule when establishing priorities with budgetary guidelines. Having them in place allows for a person to plan out their personal expenses. Hence, they know what to expect each month, and there are no surprises.
Common Budget Categories for Managing Personal Expenses and Costs
The easiest way to determine budget categories for your budget is to identify the expenses that are most important to you and making sure they’re covered.
For example, if a person has children, then the food may be seen as a top priority, whereas someone without kids would put less of their budget towards food.
There’s nothing wrong with this because it shows more responsibly within one’s own financial situation, but there is an urge for some people to overspend on unnecessary things in order to deem themselves “successful.” So many place too much emphasis on money when what matters at the end of the day is health and happiness.
There are a lot of budgetary categories that can be used to help improve your credit score and manage personal expenses. The list below is a guide for the main categories.
Main Budget Categories:
- Entertainment and Recreation
Any person can use budgetary guidelines to manage their own personal expense with the categories that best fit them.
The percentages of your income for each category will vary from one individual to another, depending on what you make in comparison to how much these items cost per month or if they are necessary for survival every month as well.
Financial situations vary greatly from one person’s situation to the next. There is no set rule when establishing priorities with budgetary guidelines, but having them in place allows a person to determine where they stand financially without surprises happening at the end of the month.
The most popular budget categories are food, housing, and transportation, but others are available to help individuals who want to know where their money is going. Knowing $40,000 a year is how much per hour can also track your finances.
The percentage of income spent on each category will vary from person to person depending on what it costs for these items monthly or if they’re necessary every month.
How to Use Budget Categories for Managing Personal Expenses
You can use budget categories to manage your personal expenses. The steps to take to do this are:
- Write down all of your expenses that you expect to have every month.
- Allocate a certain percentage for each expense category and write it next to the appropriate category on the list. For example, if clothes are 40% of what you spend each month, then assign 40% in front of “clothes” on the list. If entertainment/recreation is 20%, then allocate 20%.
- Decide how much money is allocated before listing any percentages, so there’s some leftover amount for unexpected expenses or emergencies (emergency fund). This should also include savings, investments, etc., but not loans because they’re still being paid off monthly with budgetary guidelines).
- Once you have written everything down, create a spreadsheet or another document with all the expenses and percentages.
You should use budgetary guidelines for managing personal expenses because it will help you budget in advance so that nothing is missed or forgotten about.
It also helps to keep your spending more predictable and realistic by knowing how much money is allocated each month. They are good to use when budgeting for the self employed family too.
Budgetary Guidelines are useful in the planning process of personal expenses since they explain what percentage of income should go where, which reduces surprises at the end of the year (i.e., when taxes come due).
Using Budget Percentages for Your Budget Categories
Most of your budget categories will have percentages that you want to budget for.
Here are common budget percentages:
- Food: 20% of your salary
- Clothing + Shoes: 15%-25% of your salary
- Transportation (including transit, car maintenance, and insurance): ~15% of your income
- Utilities/Internet/Phone: $100-$150 a month on average (~$200 if living in NYC)
- Entertainment (Movies, Concerts, Bars, Clubs): $50-$75 a month on average ($300 or more if out every weekend)
- Savings (<20%) – This is the percentage left over after everything else has been paid. It should never be less than 25%. Savings can go higher, but it depends on how comfortable someone is with a higher percentage of their paycheck going into savings.
To have a successful personal budget, you must use budgetary guidelines for managing your expenses and understand the percentages associated with different areas in which you will spend money throughout the year.
It is also important to keep track of your cost and what was spent during the month, so if there are any overages or under-spending, you can make adjustments accordingly.
- If an individual spends more than they had planned on clothes this month, then maybe next time, less might need to be allocated towards clothing costs because now they know how much they typically spend each month. Similarly, if someone has not saved as much money as they would like, then saving needs may increase.
You Can Make a Budget with Budgetary Guidelines
Budgetary guidelines are helpful in the planning process for personal expenses because they help you to organize your funds in a number of ways.
You can use a budget as a goal-setting tool, and it enables people to better understand where their money is going so that adjustments can be made if needed. Tools like a personal finance flowchart help too.
This will allow an individual or family to have more control over their spending habits, resulting in increased savings due to fewer unnecessary items. Budgeting guidelines should be used with budget categories.
The most important thing to know when it comes to budget guidelines is that they should be realistic.
A budget may not have to account for every expense, but it needs to allow the individual or family to live a more frugal living lifestyle with less debt. It can help you save money and get out of debt quicker when used in this manner.