A budget can help you work out what you’re spending money on and when… yes it is the anxious ‘B’ phrase, but it’s the starting point for creating your very own wealth plan. How can you get somewhere if you don’t know where you are starting from?
Bottom line: every money-smart person I ever met has had some form of a budget. The good news is, that it’s not hard to do. Even better, once you’ve done it, it’s easy to keep updated.
Whatever your plans, a budget can help you to:
- Get more organized with your finances
- Cut down spending in areas you have a tendency to overspend, like clothes shopping or eating out – this can significantly help you cut your debts
- Save for a specific goal like going overseas or buying your first property.
- Once you’ve created your budget, it can be easier to keep track of your spending, change your behaviors and reallocate your funds to attain different goals.
How to build a basic budget
First, workout your income. Include your salary, plus any bonuses and investment income. Then, divide your money into six main buckets:
Living expenses-include rates, utilities, telephone, groceries, medicines, clothes, education, pets, child caution and home maintenance.
Transport-include petrol, vehicle registration, repairs, parking, and general public transport and taxi fares.
Loans, credit card and store accounts-include home loans and personal loans.
Taxes, fees and charges-include taxes on any assets, and fees and duties.
Insurance and superannuation-include life, health, super, home and contents, car, business and every other insurance.
Leisure and entertainment-include holidays, eating out, takeaways, sporting memberships, newspapers, books, music and gifts.
For each bucket, indicate how much and how often you need to pay-weekly, fortnightly, monthly or annually.
Controlling and sticking to your budget
Once you’ve crunched the numbers you could start looking at areas you can make savings.
You don’t have to do it all by hand. There are plenty of tools to help you manage finances:
A simple online tool like ipac’s Smart Money Guide will help you tally up your expenses and work out how much you have left over.
Apps like MoneySmart TrackMySPEND allow you to track your personal expenses on the go.
Once you have your budget, the fun starts – you know how much you can save. Contact me today at ipac Western Australia to make a time to plan your Life Enriched.
Five simple steps to better budgeting
1. Be honest
Make a point of sitting down and taking a realistic look at your finances.
2. Balance the budget
With your budget at the ready, have a look at what you want to achieve and how you can get there.
3. Take the cash-only challenge
It’s statistically proven that using cash will help you spend less.
4. Start saving for summer
If you know you’re likely to want to go on holiday later this year, start putting aside money each month well in advance, rather than putting it on a credit card and getting stung by interest charges later.
5. Resist temptation
Write a list before you go shopping (and be strict with yourself once you’re there) or try buying online to avoid temptations in store.
To get things rolling with your budget, first download Dave Ramsey’s cash flow plan forms. The “monthly cash flow planning” form is the main one for most people. Further instructions are included on the form. For those with irregular income, use the “irregular income budget” form on the same page. Instructions are also included with that.
Get started today! It doesn’t matter that we’re in the middle of a month. And keep in mind your budget won’t work at first. It didn’t for us, and even after three years we still make mistakes. I can tell you though, if we hadn’t kept at it, we wouldn’t have the sense of freedom we have. Telling your money what to do makes it go further. Plan your spending every single month and you’ll find the freedom I’m talking about, and you’ll realize you make more than you thought.
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