How to Manage a Personal Budget as a Single Person

In his article, “The ‘Trophy Kids’ Go To Work” (The Wall Street Journal, October 21st 2008), Ron Alsop references some alarming statistics from a CareerBuilder.com survey on the attitudes of “Generation Y” or “Millenials” towards work:

“The generation’s greatest expectations: higher pay (74 percent of respondents); flexible work schedules (61 percent); a promotion within a year (56 percent); and more vacation or personal time (50 percent).” 

Often also referred to as “Generation Me”, it would be easy for those of us currently in the first 15 to 20 years of our working lives to hang our heads and slope away in shame. We are presented as a generation driven by money and gain rather than by the more ‘traditional’ or ‘wholesome’ values of our later “Baby Boomer” and “Generation X” parents.

While this may arguably be true, at least in part, of many of us, it is worth remembering two very important things:

* We live in a very different World to that of our parents at a comparable age.

* We are a generation who were highly educated, but not generally given much training in life skills.

One excellent example of this, would be in the area of managing personal finances.

Our parents, from the time they were very young, were, if not actively taught how to manage finances, at least exposed to examples. Families were closer and more open with each other. They shared far more of their lives. Very few people had much to offer their children other than the life skills they had learnt from their parents. If you had a paper round, or pocket money, you would almost always also have had an older relative to teach you good bookkeeping habits and saving and budgeting skills. Whereas, by the time we were being born, the emphasis had shifted from skills to education, with grave results as we now know.

Never having been taught the importance of responsibility for and adequate management of personal finances has led to a generation of financial imbeciles. At 18, I had a neighbour in the flats where I lived, himself only 19 (bearing in mind, at that point, in the U.K. Credit could only be obtained after age 18), who was already well in excess of £25,000.00 in debt!

So, how does one set and manage a budget as a single person?

Well, the principles are extremely easy. They just need a bit of application and follow-through to be effective.

1) First pick your format. Are you going to keep paper records solely, or computerised as well as on paper?

TIP: For most of us of Generation Y, computerised records are so much a way of life, that they are the obvious choice for the primary management of our finances. However, there are two golden rules to apply if you choose to keep computerised records:
– Keep at least one back-up hard copy. Best practice suggests that a key/pen drive or disk solely for the purpose of backing up your financial records is the smartest choice, in order to best protect your data from corruption.
– Always keep a paper record as well as a backup hard copy. You should always keep financial records for a minimum of seven years.

2) Draft out the information you want to include in your budget.

Split this information into two lists. One marked “Income”, the other marked “Expenditure” or “Outgoings”.

Work your way in your mind through first a typical day, then week, then month, then year and apply every item to either one list or the other.

Examples of income include: Wages; Regular payments from another person; Bank interest.

Examples of expenditure include: Rent; Major Bills; Pet Expenses; Birthday Gifts; Holidays; Savings and contingencies.

The first thing that you will probably notice is that there are likely to be far more items in the Expenditure/Outgoings list than there are in the Income list. This is completely normal, so don’t panic.

3) Note the amounts and frequency of all the items in both lists. For example, your wages might be €320 per week, or your rent may be €290 per month, payable on the 21st of the month.

(NOTE: The principals contained in this article remains applicable regardless of the currency you are working in.)

4) Add up all of your annual income items and all of your expenditure items. Subtract the total for Expenditure from the total for Income. If you are left with a positive number, congratulations, your finances are pretty healthy.

If you are left with a negative number, there is a problem. You have more money going out than you have coming in over the year. you need to go back to your Expenditure List and start cutting items until you have at least the amount of the deficit cut out.

It can be very tempting to cut out “savings and contingencies” but try your best not to, as having a cushion to protect you when life happens (and it does, alarmingly regularly, especially when you don’t have much money) is the best way to protect against the worst effects of poor financial health. You should first cut “dead money” expenditures such as smoking money, lotto or other gambling, then amounts for anything else that you feel you can live without. 

5) Once your “books balance”, move on to constructing your Ledger. A “Ledger” is the name of the book in which you maintain your finances.

Regardless of your chosen format, there is a convention in bookkeeping that Income always goes on the left and Expenditure always goes on the right.

You will need to include column headers along these lines:

Date¦ Detail¦ Amount in <£/€/$ etc>¦ Amount out <£/€/$ etc>¦ Totals¦ Notes¦

6) On the first row of the first table, add today’s date and a label “Opening Balance” in the “Detail” field. 

In the first row of each following page, add a label in the “detail” field of “C/F” which in this context, means Carried Forwards.

7) In the bottom row of each page, add a label in the “detail” fields of “Carry Forward”. Every time you complete a page, you drop your standing total into this box and this will become the “C/F” entry on your next page.

Now your Ledger is ready for use.

TOP TIP: Make it easier on yourself. Get into the habit of carrying a pencil case with you everywhere to put all your receipts into. Having them all in one place makes it much easier to motivate yourself to update your ledger. Especially if it’s an evening or weekend when your finances is the last thing you want to be focussing on.

You need to decide how regularly you are going to update your ledger. Many people find that weekly is a good option as daily can be too much of a chore and less regularly may be too much of a gap to head-off crises if needs be.

The best thing to do if you are working on a computer based spreadsheet, is to initially enter everything that you know for definite is coming in or going out over the year. Put the dates in the appropriate columns. The fast way to do this in Excel is to use the formula: =sum(Cell reference directly above + 1) with the format for this column set to “date”.

Add in the detail and amount of each thing in their own appropriate columns next to the date they occur on.
NOTE: You may have to insert more rows if you have more than one thing on each date.

Next, have your spreadsheet calculate your totals. The quickest way is to use the formula: =sum(cell reference of opening balance +cell reference of ‘amount in’ on next line-cell reference of ‘amount out’ on same that same line) with the column format set to “currency”.

TOP TIP: When you set the format, if you set it to display negative numbers in another colour, you will find it easier to spot 
problems at a glance later on.

Once you have the formula, you can quickly apply it to your whole page by selecting the cell with the formula and copying it, down all the other cells in this column and paste the formula in.

After you have entered all the known items, you can already see where potentially problematic areas are. Mark these in your diary so that you can plan a strategy and be extra aware during these ‘slim’ periods. Also leave a note to yourself in the appropriate cells to help you remember your strategies, or other useful things such as birthdays, or items to add to your tax return.

Then, as you go along regularly, you simply add in all your receipts against the correct dates and check that your totals are updating automatically.

Finally, once a month, review your books and adapt your budget to stay financially healthy.