Creating a budget is an excellent way to take control of your finances. Although, it seems daunting, working out where you spend money, and how you can save, is sound financial management. Plus, after you’ve done it once, it’s straightforward and efficient to use repeatedly. Let’s look at how you can ‘crunch those numbers’ and become a financial guru.
A budget shows how much you’re earning, spending, and saving. So, while it’s tempting to avoid doing a budget, the outcome is well worth the effort. Why? Well, creating a realistic budget helps you to achieve your savings goal faster.
A simple way to budget is:
- Writing down your current income – Grab your payslip and jot down your take home pay after tax and super. If you’re self-employed, then use your last tax return and calculate your weekly pay. Also, include any other sources of income – child support, government benefits, etc.
- Calculating your spending – Think about what you buy every day – coffee, lunch, and a treat. Subsequently, let’s call these luxury items – write down every expense, and be honest. Taking shortcuts here won’t reveal how much you’re spending otherwise. However, if you can’t remember, then look at your bank statements and create a monthly diary of your spending. Make sure you write down all living expenses – food, utilities, vehicle, school fees, etc. Let’s call these necessities.
- Working out your savings – Add up the ‘luxury items’ and ‘necessities’. Then, take the necessities from your income, and see how much is left. This amount is how much you could save.
Occasional costs are those expenses that come around annually. These include school fees, new tyres for the car, vehicle registration and insurances. Therefore, when making a budget, it is important to add these into your spending as well.
Nevertheless, if you’re finding it hard to account for everything you spend, then use categories. Grouping items together is extremely helpful, and makes budgeting easier. Some categories you can use are:
- Food and drinks – Groceries, lunches, coffees, dining out, Saturday night at the pub and any snacks.
- Clothing – Work and everyday clothing, beachwear, hats, bags, and shoes.
- Transport – Vehicle running costs, parking, repairs, maintenance, insurance, and roadside assistance. On the other hand, if you don’t have a car, then include bus, train, or tram fees.
- Communication – Mobile phones, the internet, and landline costs.
- Insurance – Health, life, income protection and content insurance.
- Health and wellbeing – Gym and club fees, medical costs, pharmaceuticals, and cosmetics.
- Life and leisure – Christmas and birthday presents, gifts for other occasions, magazines, subscriptions, weekends away, the movies and entertainment.
- Replacement costs – Fridges, phones, computers, and other items need replacing. So, you’ll need to set some money aside for these.
- Debts and bills – Personal loans, credit cards, store accounts and utility costs. In addition, make sure you include annual fees and charges, as well as any interest.
- Miscellaneous – Anything else that doesn’t fit in any other category such as university and school fees, childcare, and pets.
Always make sure you set aside some money to cover anything unexpected. For example, rises in rent, higher than expected bills and appliance breakdowns.
Additionally, include entertainment and gifts within your budget. By making a budget realistic, you’ll find it easier to maintain. Moreover, you’ll discover that it’s not too restrictive on your lifestyle.