How to Budget Money
Budgeting is not a 'B' word!
Budgeting to some is just a 'B' word! (Is that B for bad?) It doesn't have to be.
Think about it this way...budgeting is not so much about doing without and thinking about what you cannot have. It is more about thinking about ways to stretch, invest and spend your hard earned dollars more wisely. In a nutshell, it is more about making your money go further. So let's look at how to budget money.
A Budget is a Money Plan
A budget is a plan of how to spend your income, that is, the money you make. It allows you to pay your bills on time and save for things in the future. Think of your family budget as a means of achieving what you want in life. A budget is a practical means of understanding your money and your habits.
A well thought out, planned and realistic budget will be your roadmap to future security. It is a financial tool to make your financial dreams a possibility. A budget will enable you to reach your financial targets and set goals.
Do you budget?
The Budget Puzzle - This is my first publication on Amazon.
I wrote The Budget Puzzle over the last year or so and decided to share it with others by publishing on Amazon.
When asked to review my book before publishing it this is what Ken had to say: "Hi Lyn. I have read your proposed document. I found it spoke in plain understandable language. The step by step format was easily followed and made for a good practical approach to Budgeting. Kind Regards Ken Snelson"
Davewo wrote: "Detailed and perceptive cash management.
Useful and practical, the book contains everyday financial advice to assist anyone achieve their retirement goals."
Well known author, Suze Orman, writes another winning book to help educate her readers.
10 How To Steps
- Identify where you are spending your money now. This will include bills and spending money. While you have a record of bills it is the spending that is the danger to blowing your budget.
For a few weeks, perhaps a month or more, keep a record of what you are spending. Purchase a little notebook and record EVERYTHING you spend. This includes your daily caffeine fix! The money in your pocket is the easiest to lose track of. Keep your receipts and dockets and make a note at the end of the day.
- Identify the sources of your income. This covers money coming in from your job, your earnings from investment, overtime, your online earnings (if they tend to be regular). Obviously things such as overtime and Internet earnings fluctuate so don't rely on them...just identify them.
- Pay yourself first! This means putting some money aside for yourself.
You pay for groceries, rent, power and other expenses so why not pay yourself? Try to aim for 10% of your income.
- Create a list of your expenses. These are your regular expenses such as your mortgage payments, power, gas, insurances, food and groceries and anything that you spend your money on each month.
- Break your expenses into fixed and variable.
The fixed items are those that do not change each month such as your mortgage, your rent, insurances etc. Allow for expenses other than monthly. These could be annual or quarterly.
The variable will be things like your entertainment, groceries, gas (petrol) for the car etc. It is this category that you will be able to adjust if you need to tweak your budget.
- Identify your goals. Allow for savings for goals such as vacations (holidays), education and more that you have identified in your goals.
- Add your expenses column and the income column. Subtract one from the other. If your expenses are greater than your income you will need to make changes...this is called a deficit. You want to aim for a surplus!
- Make changes if you have a deficit. Adjust your variable expenses by shaving off amounts. Fixed expenses are normally essential so cannot be changed.
- After the first month review your budget to see if you are on track. Make sure that you create a habit of regularly reviewing your family budget.
- If you receive and increase in your salary make sure you adjust your budget and pay the extra cash to paying off debt or saving for your future! It is so easy to make your spending habits fit your increased income but really hard to go back!
It is important to remember your expenses that are not monthly...such as rates, insurance and more. Include this as a monthly figure in your budget so that the money will be there when needed. Have a bills account for such expenses.
Do your review your budget regularly?
When reviewing your budget take a look for opportunities to reduce your costs. Here are a few ideas:
- Compare telecommunications packages. It's competitive out there and you may be able to get a better deal
- Compare power providers charges.
- Are you paying for services that you don't use? Perhaps you pay to view TV channels that you don't ever use.
- Review your home, contents and car insurance. Having all covered with the same provider usually means getting a discount on the total.
- Review your life insurances with your adviser. You may not be able to reduce costs but at least you will know that you have the right sort of cover. This should be done annually or when circumstances change in your life.
My disclosure statement is available free on request.