A personal budget is a plan that allows us to take control of our finances. It can be used to manage our spending, prepare for unexpected expenses and help us save for future goals.
Using a personal budget makes it easier to:
A personal budget can be used by anyone, regardless of their level of income.
For any budget, the two main components are income and expenses.
Income: money we earn
Expenses: money we spend
Expenses can be further classified into:
Fixed expenses: the same amount is spent each month. These expenses are paid on a regular basis (weekly, fortnightly, monthly), usually in the form of bills. Examples include rent or mortgage payments, insurance premiums, loan repayments, vehicle registration, household bills, subscriptions, gym and sporting club memberships.
Variable expenses: usually different amounts are spent depending on the situation. These expenses are often irregular and vary according to need or discretion (known as discretionary spending). Examples include the cost of food, clothing, household goods, fuel, emergency repairs/maintenance, medical expenses, entertainment and hobbies.
Savings: this is what remains after we subtract expenses from our income. A budget can help us decide which expenses to reduce or eliminate, in order to maximise our savings.
Most personal budgets are planned for weekly, fortnightly or monthly time periods, depending on when income is paid. In contrast, a budget for a business might extend over a full financial year.
A good budget needs to be flexible and able to adjust easily if costs or earnings change. For this reason, many people use a spreadsheet program to set up and maintain their budget.
A weekly budget is shown in the table below:
Income | Expenses | ||
---|---|---|---|
Earnings | $\$505$$505 | Mortgage | $\$147$$147 |
Electricity | $\$23$$23 | ||
Food | $\$64$$64 | ||
Council Rates | $\$22$$22 | ||
Insurance | $\$20$$20 | ||
Water | $\$64$$64 | ||
Clothing | $\$46$$46 | ||
Entertainment | $\$56$$56 |
Solution
Weekly expenses | $=$= | $147+23+64+22+20+64+46+56$147+23+64+22+20+64+46+56 |
$=$= | $\$442$$442 |
Weekly savings | $=$= | $505-442$505−442 |
$=$= | $\$63$$63 |
Savings as a percentage | $=$= | $\frac{63}{505}\times100$63505×100 |
$=$= | $12.475$12.475... | |
$=$= | $12.48%$12.48% (to 2 d.p.) |
Mortgage as a percentage | $=$= | $\frac{147}{505}\times100$147505×100 |
$=$= | $29.108$29.108... | |
$=$= | $29.11%$29.11% (to 2 d.p.) |
Mortgage paid in one year | $=$= | $147\times52$147×52 |
$=$= | $\$7644$$7644 |
Amerie pays rent of $\$239$$239 per week, and must budget for electricity and water costs of $\$533$$533 per quarter. How much should she put aside each week to cover these expenses?
Luke’s weekly expenses vary slightly from week to week. His expenses in the first 3 weeks are $\$225$$225, $\$218$$218 and $\$208$$208. If he can only afford to have an average weekly expense of $\$221$$221 every four weeks, what is the maximum expense he can have in the fourth week?
Let the amount he has to spend in the fourth week be $x$x.
Beth’s expenses currently represent $30%$30% of her $\$920$$920 weekly income.
If her expenses increase by $6%$6% of their current value, what will be the new percentage of her income taken up by expenses?