Budget. Scary word, isn’t it?
One little word which implies all kinds of scrimping and saving, hard times, self-denial and a modest lifestyle can strike fear into our hearts. But it needn’t be as scary as all that.
All of us, whatever our income and lifestyle, could benefit from the power of a well-made budget. It can lift you out of debt, help you plan for your future, and all-around make your life easier to live. It won’t solve everything, but it’ll go a long way to helping you take control of your life.
But how do you go about making one and sticking to it? Well, here are 5 steps to a better budget.
Step 1. In
The very first thing you need to do when trying to assemble an adequate budget is working out how much money is coming in. Don’t look at your salary, but only consider how much is left after tax each month. Now add any extra income like benefits or bonuses over the course of the year.
What you’re after is an average monthly total. So just total up the money you had coming in over the process of the last year and divide it by 12. This is what you have coming in each month. It’s not a good idea to include one-off payments as they might not be coming in year on year. Just include all types of regular income such as salary, rental income, anything you know for sure is coming in. Got a number? Congratulations, you’ve taken the first step to becoming a name-taking successful budgeter.
Step 2. Out
Now you’ve worked out how much you’ve got coming in each month, you need to take a long hard look at what’s going out. There are two types of expenses the average person has.
Fixed expenses are the ones that are the same month on month. Like your mortgage, health insurance, repayments on big ticket items, utilities, things like that. It’s a good budgeting idea to include your savings in the fixed expenses category, make them a standard monthly outgoing.
Variable expenses as the name implies, are those outgoings that change from month to month. What you spend on food, clothes and going out, or more expensive one-off payments like vehicle repairs or holidays. These will be different from one month to the other.
So, like you did with your income, to build an accurate picture of what you spend in an average month, total up all the money that went out in the last year and give yourself a rough monthly figure. It’s a good idea to tack an extra 10% on top of this then, just to build in a margin for error.
There, now you’ve got the amount coming in against the amount going out. The hard work is almost done; you’re halfway there now!
Step 3. Crunching the numbers
This is the bit where things get serious. A good budget calculator can help here.
If your money coming in is a greater total than money going out, excellent. But a good budget could still make things better. If the outgoings exceed the incomings, then we need to get this budget done to swap that trend around. We want those incomings exceeding those outgoings for your financial peace of mind. But don’t worry, that’s the whole point of making a budget.
Step 4. Making it work
There are two ways of making your budget work for you. Either make the amount coming in go up, or the amount coming out go down. Or even better, do both. But first, you need to take control. Make sure your fixed expenses are automated, and you know precisely when they’re going out. Look to see if you could bring any of them down. Is there a cheaper health plan provider? Could you refinance at a better rate? Once you’ve given your fixed expenses a good going over, then it’s time to take the variable ones.
Variable expenses are easier to cut down on. It can be as easy as switching from brand name goods to unbranded ones, or cutting out a couple of nights out a month. Look long and hard about how and where you’re spending your money, and be honest with yourself. Do you need to buy so much stuff?
When you’ve brought down your outgoings, look at increasing the incomings. Do you have a few hours to spare for some extra work? See if there’s any stuff you can sell. There are many ways to make a little extra cash, and it could prove the difference in balancing your budget.
Step 5. Hang in there
Once you’ve balanced your budget, the important thing to do is to stick to it, so it becomes second nature. Automate as many payments as you can (including savings) and make sure that you keep an eye on whether it’s working.
If things aren’t going as well as you’d hoped, go back to your numbers and look at them again. With a little application and discipline, you could be free from money worries in no time.