Creating a home budget is an excellent way to take control of your finances. Plus, it enables you to save for a home quicker, and then to manage the mortgage once you are committed. So, while it seems daunting, working out where you spend money, and how you can save, is sound monetary management. In addition, 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 home budget shows how much you are 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 straightforward way to create a home budget is to review what you earn, what you are spending where, and then calculate your savings. Here’s the deal:
Write down your current income – Grab your pay slip and jot down your take-home pay after tax and super. Now: if you’re self-employed, then use your business bank statements to calculate your average weekly wage. But, if you find that your salary fluctuates depending on work, then look at your last tax return. Also, include any other sources of income – child support, government benefits, etc.
Calculate your spending – Think about what you buy every day – coffee, lunch, and treats. Let’s call these luxury items. Next, write down every daily and weekly expense, and be honest. Taking shortcuts here won’t reveal how much you’re spending otherwise. Don’t forget to include the cost of running your car – registration, petrol, insurance – and make sure you include your bills. If you’re not sure what you’re spending, then look at your bank statements and create a monthly diary of your spending. Make sure you write down all living expenses – food, nights out, entertainment, school fees, etc. Let’s call these necessities.
Work 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 if you forgo those luxuries.
No one likes them, but there are times when occasional costs arise. These costs include those expenses that come around annually or once every few years. These include school fees, new tyres for the car and servicing, as well as life insurance and other costs. Therefore, when making a budget, it is essential to add these to your spending as well.
You might be wondering: if you are finding it hard to account for everything you spend, then a handy method to overcome this is to use categories. Want to know the best part? Grouping items together takes the guesswork out of budget creation, and makes it easier to cover all your expenses. Some categories you could use include:
- 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. Also, make sure you include annual fees, as well as any interest.
- Miscellaneous – Anything else that doesn’t fit into any other category such as university and school fees, childcare, and pets.
When creating a home budget, always make sure you set aside some money to cover anything unexpected. For example, rises in rent, higher than expected bills and appliance breakdowns. If you own a car, then set aside some money for repairs, because sometimes a vehicle needs extra work to keep it running.
If you’re saving for a home loan deposit, then it is a smart idea to calculate your stamp duty and other costs such as moving fees and conveyancing charges. This strategy will enable you to save more so you cover all costs, and so you avoid any financial difficulties once you’ve committed to buying a property.
Saying that you are going to forgo all luxuries until you’ve saved for a home is not realistic. Therefore, it’s vital that you include entertainment, the odd night out and gifts within your budget. By making your budget realistic, you will find it easier to maintain. Moreover, you’ll also discover that it’s not too restrictive on your lifestyle.
There are many ways that you can save for a home loan faster. Here are two of the best:
- Download an app – There are smart tools available online that help you save. Just download the right app for you, then put in your expenses, and the app handles the rest.
- Review high interest savings accounts – If you are looking to save faster, then consider opening a high interest savings account. Some offer you rates of up to 3%.