A budget is quite possibly one of the most important things when it comes to your finances. The key to a budget is sticking to it though. A budget can be as simple or as complex as you like. I have written about budgeting before here and here, but will review it again.
Basically a budget just your income vs expenses written down. You can use spreadsheets or track it however you like. To get a good idea of all your expenses collect all your bills, bank statements and things. Write the cost of everything down. I find it best to divide the amounts by how often I get paid. For example insurance is an annual expense, but I divide it by 26 as we get paid fortnightly. This way I now how much to put aside each fortnight to pay my insurance when it is due.
You need to write down every expense. For example:
Rent/mortgage/board
Groceries
Petrol
House insurance
Car insurance
Life insurance
Health insurance
Car registration
Water
Gas
Electricity
Clothing
School fees
Presents
Entertainment
Internet
Phone
Road tolls
Sanity money
Holidays/travel
Car maintenance
House maintenance
Medical expenses
Savings
Hair and Beauty
Debt (e.g. personal loan, credit card, car loan etc)
You get the idea. Every expense you have, list it. And yes, savings should be listed. You aim should be to save at least 10% of your income. If you are unsure what some of your expenses are, it is a good idea to track everything you spend for a while to see where all your money is going.
Now you know all your expenses, how does it stack up against your income? Be realistic with your expenses. Are you living beyond your means? Or does your budget say you are living below your means, but you still don’t have any savings? Hopefully your budget actually shows that you are living below your means and you are saving money and that money is actually going into a savings account. If it’s not, you need to work out why.
Now that you have a good idea of what your budget should be, you can plan accordingly. If you are living beyond your means you will need to look at ways to cut back and/or increase your income. We will be covering all of that over the coming month.
I am in the process of organising a budget spreadsheet and an expense tracker which will be available for free to download on this site. In the meantime I have found this one to be good for a budget.
How did you go? Did you find it easy or hard to set up a budget? Were you realistic and will you be able to stick to it?
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One category that needs to be in everyone’s budget is one for giving. Not just presents for Christmas & Birthdays etc. But also for charity giving. There is something about giving money away that is good for the soul/spirit within a person. People who learn to give seem to be better at handling money as well. In the Christian tradition, people are to give at least 10% of their income away. Even among not Christians, I have noticed that those who give away part of their income tend to continually move forward in what they make.
True. I am Christian and give away more than 10% and it returns many more blessings, I know many finance advisors who recommend the same too. I should have included that, but as I said list every expense you can think of, so it is personal discretion. Thank you for pointing out giving though. Glad to see others who do the same.
That is a really great extensive list of expenses – I think the act of simply thinking about and writing down so many categories would be enough to make people concerned about saving money on at least some of them.
Two tips that I would suggest:
1. Don’t forget to also have a list of your income – this will be your job, but also money from selling things (if like Kylie you are on your way to say selling 1000 things), gifts received, and so on.
2. To make analysis of your spending a bit easier to get your head around – in terms of where the money goes, lump categories together as much as you can – e.g. Home, things, travel, going out. Once grouped, you can see what the biggest parts of your financial are, and then dive into the detail as you need to.
True, I did mention income, but should have covered it a little more.
I used to group my expenses, but found individualising them helped me see it all clearer, but different things work for different people. Great suggestions, thanks!
I have tried this on several occassions but find it impossible to get my head around it these days with no set income coming into the house anymore…the people we share farmed with (my in-laws) no longer milk cows and I no longer have a paid job…..we are just on the money from the trucks….at vintage time we do about 2 months worth of work and basically don’t get paid until some time in the next few months after it’s finished….at other times of the year there will be no work for several weeks at a time…there is no consistency and it’s always an unknown…I just can’t get my head around it and I tend to panic if i spend to long thinking about it
It can be really hard with varying income (we’ve been like that a lot). It’s good to know what expenses you have, how much they are and then when money is coming in set aside extra to try and cover the expenses when money is not coming in, or pay as many bills annually as you can so when you have the money to ease the stress.
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