- Personal Finance
How to manage and create a financial plan . Living well on a fixed budget.
How to Create a Budget
Understanding how to budget is a skill that can mean the difference between living well or living in constant stress. Whilst budgetting may not sound fun the result of living within a budget can lead to fun. Whether you live on a fixed tiny income or have a high income it has been proven time over time that we tend to live to the maximum of our income. In this budget - or financial plan - I have included paying yourself in the top line and aiming to save for both pleasure and emergency situations..
Use the following financial planning budget sheets for income and expenditure to get a realistic picture of your income and expenses. Make adjustments within the expense lines so that you have money for pleasure and savings. That may mean giving up unnecessary or spur of the moment spending. By creating a budget you will benefit from knowing exactly how much money you have and not having additional stress about special ocassions such as Christmas or birthdays, or if something happens that means you earn no income for a three month period of time.
Financial Plan - Budget Sheet Income
Monthly Family Income (net) (Use all that apply)
Child Tax or Child Benefits
Misc Net income
Financial Plan - Budget Sheet Expenses
Self (10% of net income) This is your discretionary spending total for the month
Savings - 5% of net income. This money is untouchable
Property taxes/strata fees
Public bus Tickets/Bus Pass
Rail Travel/Rail Pass
Personal Expenses (Discretionary)
Treatments e.g. chiropractic/massage
Non Discretionary Expenses
Managing Financial Problems
Facing the problem
If after competing the budget you recognize you are unable to meet your financial obligations or if you are drowning in debt, no matter how that happened, the most important first step is to face the problem head on.
In these uncertain financial times people across all socio-economic groups are facing a financial challenge. It doesn't matter if the debt is $100, $1000 or $1000,000 dollars - debt is debt and the stress and threat to health that goes with it is considerable.
Understanding that this problem is not unique to you and your circumstances is important. Reaching out for help that will assist you to change the current situation is essential.
I am writing this as one who has been there - job loss and health issues created serious financial hardship - but the real problem was burying my head in the sand and not changing my relationship with money.
The first Step
Assess whether the current debts that you have are caused by one or more of the following:
- Unable to pay the minimum on credit card statement(s)
- Using credit card for items that used to be paid for in cash or with debit (groceries/incidentals)
- You are over/at or close to all credit limits
- If you lost your job today, you'd be in immediate financial trouble
- You have no clue about the size of your total debt or monthly expenses
- You're arguing with your partner at home about money
- Your bank overdraft always needs an overdraft
- You've consolidated your debts more than once
- You're receiving harassing phone calls from creditors
- Stalling one creditor to pay another
- No money before pay day
- No savings
- Charging more per month than paying on account
- Requesting credit limit increases
- Making unplanned major purchases.
Highlight as many contributing factors on the list that have led to the current debt problems. Add more if you have different ones.
Breathe. You have taken the first step. You may be feeling overwhelmed and feel like blaming yourself or others. STOP. In order to change our relationship with money it is important to practice our practical and cognitive responses. Self blame, emotional attachment to being in debt/victim of debt and not taking reposibility by blaming others is like driving whilst texting, we will crash and the mess will get worse.
Now you are ready to take the next practical step. Based on how much you owe and whether your debts are in collections or not you will need to consider which professional help is right for you. These are some options:
- If your debts are repayable and you have income coming in consider talking to your bank about a consolidation loan at a lower interest rate than your current credit cards.
- If your debts are all in collections, you have regular income and a bank loan is not possible research credit counselling societies in your local area.
- If your debts are in collections and you have no regular income coming in call and research local trustees in bankruptcy/credit proposals in your area.
- Call the credit card companies yourself and ask to speak to someone who has the authority to negotiate a repayment plan with you.
Other than a lower interest rate loan to consolidate debts DO NOT attempt to borrow or re-finance. This will create more of a problem down the road.
The Good News
Whatever your financial picture is right now you can change it. With some small adjustments to spending, saving at least 5% of your income and only using 10% of your net income towards discretionary expenses, possibly picking up a second job or renting out a room in your home for more drastic situations your finances will become healthier.