One of the most important aspects to maintaining a good personal budget is knowing the basics.
First off, you need to know the different types of expenses:
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| In the real world, you can't save everything you make. |
Fixed Expenses: These are expenses that you get a normally recurring basis, whether it be from day to day, month to month, or year to year. Mortgages, rents, and such things would be included in this category.
Flexible Expenses: These are expenses that can be avoided and while they are often important, they are technically not mandatory or avoidable. Expenses that go towards things you want but don't need will almost always go under this category.
So that broadly covers the two types of consumption spending. On the other side of things, there's savings and investment which are also important to manage when trying to achieve economic well-being. When you put money into or loan from a bank, interest is often involved. Interest is extra money that goes into a savings account as a type of "thank you" gift for investing your money into a bank, or if you're taking a loan from a bank, it's essentially the profit the bank makes for letting you borrow some money. For every period (whether it be by day, week, month, etc.) interest is charged to a loan or investment.
Simple/Compound Interest: Simple interest is the type of interest where the the interest added to the balance is constant with the interest rate: it always uses the initial value loaned or deposited when factoring interest at each period. Compound interest, on the other hand always uses the
current value of the account when factoring at each period, or 'compounding'. So the compounding will add the same amount as it would with simple interest, but the next time it compounds, it will use the value of the last compounding instead of the initial value.
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| Managing your money can really be as simple as this. |
So, knowing the basics of budgeting, the important thing you should remember is that you must find a balance between your spending and your saving, such that you are not spending too much of your money, but at the same time, not saving so much that your life at the current moment is unbearable.
It is okay to spend some money on luxuries so long as you're careful that you don't overdo it.
I would recommend that when managing your budget that you make sure you can take care of required expenditures for the next few months in case your source of income decreases unexpectedly, then split what remains between savings and investments, emergency expenses, and leisure expenses.
An article focusing on banking and saving
And a little video about starting to manage your budget
