What Are the Factors for Preparing a Budget?

Some people make the decision to prepare a personal budget to meet a very specific goal while others choose to create one in response to a new job situation. Whatever your reason, it's a smart financial move. When you finally start creating your personal budget, focus on a few important factors to ensure that it's complete.

Income

The first important factor in preparing a budget is your income. When preparing a budget you need to focus on your net income, not gross. The amount of money you take home each month is what you use to pay your obligations. You could still choose to list amounts that get deducted from your income on a pretax basis, such as retirement contributions, in a separate area of your budget worksheet.

Costs

Think of your personal finances as a business, and with any business you have costs required to stay in operation. When preparing your budget you must take every expense into account. Anything that you spend over the course of the month must get recorded in your budget, and that can prove difficult in some cases. You must include even the small purchases you make at the neighborhood convenience store to get an accurate total for your budget.

Balance

The next important factor in preparing a budget is achieving balance. The side of your budget worksheet that lists income must equal the side for expenses. More income than expenses is a nice problem to have — just assign the excess to a savings account or other initiative. If after you record your budget details you have more expenses than income, that's a more serious problem that requires you to reduce expenses and possibly identify new ways of making money.

Goals

Another key component you need to address when preparing a budget is how to reach certain financial goals. Take time to mull over the short- (less than a year) and long-term (one or more years into the future) goals you want to achieve with your money. Record this information in your budget worksheet and monitor your progress toward those goals regularly.