Five Easy Hacks To Create a Personal Budget for Financial Freedom

Let’s be honest, we all feel overwhelmed trying to manage money sometimes.

I used to feel so guilty looking at my account statement and seeing random charges for stuff I didn’t need. 

So, I understand how frustrating it can be when you spend all your hard-earned money without saving a penny. 

Trust me, nothing is as painful as realising you’ve wasted money on irrelevant items. 

The guilt and the bitterness would grip your heart so much that you would feel like turning back the hand of time. 

Well, don’t be too hard on yourself if that’s your experience. Instead, you’ve got to stop letting money control your attitude.

And one way to achieve it is through personal budgeting.

Having a budget will make it much easier to handle your finances. 

You can track where your money is going, reduce stress, and put yourself on the road to hitting your financial goals. 

It will also boost your chances of saving on a tight budget.

Wondering how you can make a budget that will work for you? Don’t worry, I’m here to help you. 

I will be sharing some budget tips and personal experiences with you in this article. 

So, let’s dive into the real action. 

What is the Importance of a Personal Budgeting 

Below are reasons you should have a personal budget: 

 1. It Encourages Wise Spending 

A proper personal budget encourages wise spending as it helps you know what you need and how to get it. 

It will prevent you from purchasing unnecessary items that won’t boost financial worth. 

2. It Prepares You for Emergencies 

We can’t stop the unexpected from happening, but we can prepare for it. 

With a proper budget planning, you won’t have financial issues in emergencies. 

That’s because it gives room for savings that will handle unexpected issues.

A good personal budget lets you save at least 20% of your earnings as emergency funds. That way, you won’t be stranded when the unexpected  happens. 

Meanwhile, experts recommend having 3-6 months of living expenses saved.

3. It Facilitates the Perfect Retirement Plan 

Retirement requires careful planning. 

Luckily, a well-planned personal budget caters to life after retirement. 

It helps you plan and save for old age when you won’t have sufficient energy to work or perform heavy tasks. 

4. It Promotes Proper Money Management 

The primary function of any budget is to encourage proper money management. 

Thus, your budget will help you know how much you receive, spend, save, and invest. 

It will help you have a track record of what you do with your hard-earned salary and wages. 

Factors To Consider When Creating a Personal Budget 

Observe the following factors if you must create an effective budget that will improve your finances:

1. Your Income 

Your income is the first and most significant factor to consider because you can’t do anything without it. 

Tally up net income after taxes and deductions. Your total earnings will determine what percentage to save or spend.  

2. Expenses 

While you consider your income, don’t ignore your expenses. 

What are your regular expenses — things you can’t do without? List the costs for necessities like housing, food, utilities, and transportation. 

Meanwhile, don’t forget unexpected expenditures that could arise without prior notice. 

Knowing your regular bills will give you a perfect clue of how much to budget. 

3. Financial Goals 

Your short and long-term goals are another factor you shouldn’t overlook because they can shape your budget priorities. 

Set your financial targets and create a budget that will boost your hopes of achieving them. 

Now that you know the factors to consider before creating your budget, let’s discuss how to go about it. 

Step-by-step Guide to Creating a Personal Budget 

Below is the step-by-step guide to creating a personal financial budget that will work well for you: 

1. Get a Secure Template for Your Budget 

Budget isn’t something you write in any paper. It’s a significant material you shouldn’t handle recklessly. 

Therefore, getting a secure template is the first step to creating a long-lasting and accessible budget. 

Spreadsheet or budgeting apps work well.

Meanwhile, you might choose the traditional pen-and-paper option if you will guarantee its safety over a long period. 

2. Calculate Your Net Income

Whether app or a hardcopy, the next step involves calculating your net income. 

Don’t just focus on monthly salary— calculate your net income to know how much money is in your account. 

As a freelancer with irregular income streams, you must keep all earning records for proper accountability. 

Meanwhile, Net income is the amount left after deducting taxes and other mandatory charges from your total income. 

3. Create Columns for Important Sections

Divide your budget plan into four very significant sections. These include expenditure, emergency, savings, and investment. 

Personally, my budget features the six sections below: 

  • Tithe:

As the name implies, this part is about giving the lord 10% of my earnings as a Christian. 

This aspect is crucial to me, which explains why it’s first on my list. 

  • Charity:

I give a certain percentage of my earnings to charity because it’s more blessed to give than to receive. I ensure 5% of my earnings goes into this section.

A young man giving food to the poor and needy

  • Emergency:

I have been in diverse near-death situations because I didn’t prepare for an emergency. 

I learned my lessons the hard way; so, I never joke with this part. 5% also goes into this part. 

  • Investment:

My financial goals are more than items. They include investing in a business that guarantees high ROI in the future.

I divert 10% of my net income into these aspects. Admittedly, I haven’t invested much, but I’m doing well in that regard. 

  • Savings:

This part is mainly for accruing properties. At least 30% percent of my earnings goes into this section. 

  • Expenses:

This is the last section that deals with my day-to-day expenditures.

I created a list of regular expenses like food, mobile data subscriptions, transport fares, etc.

You might not follow my pattern, but ensure your budget covers at least four most important aspects.

The remaining 40% are meant for daily upkeep and bills. 

4. Assign Money to Each Section 

It’s not enough to create sections, you must fund each of the sections — monthly or weekly based on your preferences.

You can divert 20% of your net income to expenditures, 10% to investment, 5% to emergency, etc.

Money increasing through investment. A factor to consider when you create a personal budget.

Make a rough list of the items you need and bills to pay each month. 

That will help you predict how much to set aside for every section. 

5. Be Disciplined 

Having determined how much to spend, save, invest, and give to charity, the next step involves being disciplined enough to follow it. 

Stop your flamboyant lifestyle if necessary, and stop fast food and unnecessary items so you won’t exceed the budgeted amount. 

Sample Budget

Here is an example of a household budget for a family with $5000 in net income:

Housing: $1000

Utilities: $200

Car payment: $300

Car insurance: $100 

Groceries: $400

Dining out: $200

Entertainment: $150

Clothes: $100

Miscellaneous: $100

Emergency savings: $500

Vacation savings: $200

Debt payment: $750

Total budget: $5000

By following this budget each month, this household can pay down debt, build savings, and still have $650 left for flexible spending.

However, your net income should determine your budget. 

Final Thought 

Creating a detailed personal budget takes some effort, but will pay off in the long run. 

Be honest about your expenses and make budget trade-offs to align spending with your goals. 

Stick to your budget but revisit it often to adjust as needed.

With a solid budget in place, you can manage your money wisely.

Meanwhile, don’t forget to check the three side hustles you can do to improve your financial status.

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