Budgeting basics – writing a budget AND sticking to it!!!
Are you in control of your money?
Do you have a monthly budget?
Do you pay yourself first?
Do you know what your monthly savings capacity is? Will that amount make sure you reach your financial goals?
Budgeting basics – writing a budget and sticking to it!!
A budget is a simple tool that helps you understand what you earn, what you spend and most importantly what you save. An accurate budget illustrates what you do with every dollar you make. If you choose to do budgeting, you will have priorities to focus on. You will follow a particular order of priorities when spending your money, so as to know what you can save or invest. A budget is a handy tool for management of your personal finances and it should always be made regardless of your financial situation.
Where to start when budgeting
Budget preparation can vary based on your current financial situation. If you are in serious debt, the best thing to do right now is to seek budgeting advice. Look for a good certified financial planner who can help you consolidate your debt and create a suitable debt elimination plan. Perhaps you don’t have a debt burden, but your expenditures are getting out of control. What you need is a structured budget to help you achieve your goals. Here are some easy steps:
- Choose a period that suits your lifestyle. It could be weekly, fortnightly, monthly or quarterly.
- Analyse every source of income you have. It could be your pay from a part-time or full time job, wages from casual jobs, government benefits, child support payments, pension payments, or money from shares and other investments. If your earnings are usually inconsistent, use your past year’s income to estimate what will be earned in the period you chose above.
- Gather all your expenditures starting with the obvious bills. These may include utility bills, mortgage loan, car loan, rent, groceries, medical bills, entertainment or public transport. To ensure your list is accurate, review your receipts, bank statements, credit card statements and other records. If you cannot find a supporting statement, or if your bill amounts fluctuate throughout the year, use your best guess. As you work out your financial priorities, separate your needs and wants. What you can live without should come last in your list or be skipped altogether if you plan on saving money.
- Locate a free budget spreadsheet template or budgeting app. Add your expenses and income to the template you have chosen, making sure that you follow instructions.
- Print your finished spreadsheet and keep it where you can retrieve it easily. Always read your budget before spending any money to see the amount you can spend. Then stick to that amount.
Note: If you are in debt, have a low income or have never written a budget plan before, look for a good professional to help you.
A budget is telling your money where to go, instead of wondering where it went.
How to stick to your budget
Do you plan to start a savings plan? If so, the best thing is to stick to your budget. Many people keep relapsing when it comes to following their budgets. So you should avoid doing the same thing in the following manner.
- Find ways to cut back expenses
Depending on when you are paid, decide on how to lower your expenditures. Do not reduce your spending in all area at once. Perhaps you could start with your meals. So you will find ways to get frugal based on how much you spend when you eat out and when you cook your own meals. In addition, look for ways to reduce your bills without torturing yourself.
- Involve everyone
If the budget you have made is a household one, get your entire family members involved in keeping it. Have a family meeting and identify a simple spending plan you can all stick to. Work out the amount that you all need to spend during the budgeted period, and then decide how much the breadwinners will contribute. Hold similar meetings on a weekly or bi-weekly basis, or just regularly to see how well the plan is working.
- Stop impulse buying
Each time you want to spend money, refer to your budget plan. This is how you will know how much money you can spend at the shops or elsewhere. If you must add an expensive item, say a piece of furniture, consult everyone in your family instead of buying it when you see it.
- Create a savings benchmark
It is important not to save without an aim. Research shows that people who set a savings goal prior to saving their money save more money than those who just save. Perhaps you could save money to go on a trip or to buy something you admire. What you need is just a saving account that you could add money into each week. Additionally, you should create a standing order using internet resources. If you save $250 dollars every week you will have saved $13,000 after one year. If you need help setting savings goals, seek advice from a professional.
- Pay yourself first
Use a system where all your pay goes into your savings account first. Setup an automatic payment from this savings account to your everyday transaction account for an amount equivalent to your budgeted expenses for the period. This savings account should not be accessible via an ATM. If you save first and spend second, you’ll end up with a disciplined savings regime which you can use to launch into a wealth creation program to help you achieve financial independence.
Since life is usually unpredictable, you should keep on evaluating and reviewing your budget. A situation may come and force you to spend in a way you did not expect. So you need to alter your budget to reflect unforeseen circumstances. These circumstances may include a pay rise, meaning that you can save more money. If you cannot make a practical budget, after reading this article, feel free to seek guidance from a professional.
At FinFit Wealth Solutions we help our clients budget and save money. Cash flow management is at the core of everything we do. Please call us on 1300 153 251 if you would like to make a time to meet or further discussing.
Phil and Donna.