Creating a Killer Budget
When I built my first budget several years ago, I knew approximately how much money I was making annually, but I had never broken down my expenses by category to figure out what I could afford on a recurring basis, or how much money I could regularly invest.
1. Know How Much You Have
If you have savings accounts and investment accounts, or any other financial instruments, you will want to know how much money is in each account as well as the interest rates and expenses of each one. Make note of this information as it will become important in determining your net worth and the best use of your capital in the future.
2. Know How Much You Make
For those on set incomes, it’s easy to work out, irregular incomes can be a lot harder. For casual employees or those who work in a business where income may rise and fall unpredictably, this can be much more difficult to plan a budget. The most important consideration, regardless of how you earn your monthly income, is to determine the average monthly amount of income that you receive. Best way to do this is total your years income and divide by 12 months, now you know your avarage monthly income.
3. Know What You Owe
When setting a budget template, determining your monthly recurring debt payments should be your next step. This should be fairly simple to do, the key factor is stop spending on credit and identify exactly what you owe. You can determine your monthly payment due’s by checking your banks monthly statements they provide to you monthly or quarterly.
4. Determine Your Average Recurring Monthly Expenses
This can be the hard part for many people. The best way to determine your monthly expenses for your budget is to make a stack of household expenses for a month. Keep your receipts, your utility bills, and any other expense that arises during a one-month period, and divide these bills into categories. The categories can be as general or as specific as you want them to be. I keep my categories extremely general (automotive/household), whereas you may prefer specific itemised categories such as (car wash/electric bill). Either way works well, as long as you determine an average amount of expenses for each category.
5. Enter this Information on a Budget Spreadsheet
It used to be, if you had a budget, you had an old school paper ledger. Things have changed for the better for all of us new budgeters. Budget template software programs like Microsoft Excel and online budgeting tools like Mint, You Need a Budget, and Mvelopes have made it much easier to take the results of your first few steps, and develop a highly adjustable and sustainable long-term budget.
6. Look at the Bottom Line
After entering all of the above information on your budget planner, you will discover the most important number in your budgeting process – the bottom line. This number will tell you whether you are overspending or underspending. Ideally, during this step you will find that you are living within your means, and maybe will even have a little left over on a monthly basis. On the flip side, you may determine you must make adjustments to your monthly expenses in order to live within your means.
7. Make Adjustments to your Budget
If the bottom line of your budget proved that you are overspending your monthly income, you will come to the most difficult step – making cuts to your monthly expenses. There are tons of resources here on Money Crashers that will teach you to be smarter with the income you have, help you cut your recurring monthly expenses, and establish your financial boundaries for personal budget planning.
8. Track, Monitor, and Be Disciplined
Keeping track of your budget takes an hour or so a week. But this will save you a lot of time in the long run. Once you have an established budget, you will want to keep it in check. The discipline and associated knowledge that you are making good long-term and short-term financial choices will provide you with a great deal of comfort, and will take you from living paycheque to paycheque to being able to see the long-term results of your disciplined savings and financial planning.
If you don’t have a budget, now’s the time to create one. By following the above steps, you’ll be on your way to financial freedom and building wealth for the future. There are many budget templates and budget calculators online you can access to assist you on how to budget.
If you need a debt negotiator, speak to us or connect with us at www.creditmediation.com.au