The best way to keep your savings plan on track is to create a budget. It’s super simple to start a budget, but once its in place, it can be difficult sticking to it. In this post I will delve into what makes up a budget and how you can get started.
What is a Budget?
A budget is a plan of all your expected incomes and expenses. It is a handy tool in your savings arsenal, which can be used to aid in understanding exactly where your money is going, and what is going to be left over. Most budgets are structured in a way that you have expected expenses versus actual expense. You enter your expected expense amounts at say the beginning of the year into the expenses area and then as the expenses start to occur, you put the actual dollar figures in the actuals area.
Why do I need a Budget?
I have found that creating and sticking to a budget is the best way of predicting how much money you will have at any given point in time. It enables you to prepare for big expenses prior to getting the bill in the mail and also allows you to set limits on how much you can spend on certain things like birthday presents.
What needs to go into a Budget?
A budget should contain everything you can envision spending money on. The budget which I developed for myself has the following items:
- Birthday Presents
- Car Insurance
- Car Registration
- Car Service
- Christmas Shopping
- Dog Training (Note: This has gone now that my dog is more obedient than he used to be)
- Pay TV
- Gas for the home
- General / Slush Fund (Note: I only added this because each week my budget didn’t quite line up. You should aim to have this as small as possible. If you find that after a few months it is still quite large, you may benefit from reading the following – Track Your Spending Habits)
- Going out / Play money
- Home and Contents Insurance
- Home loan / Mortgage
- Home phone
- Private health cover
- Petrol / Gas
- Mobile phone
Should I Create a Budget?
Everyone should have a budget. Should you start from scratch? Probably not. There are plenty of really good free budgets floating around the internet, a quick Google search will yield plenty of results. I created my own budget which I have uploaded here – (Free Budget Spreadsheet). Note: It is very basic and there are plenty of other more fully functional ones available.
How do you stick to a Budget?
Sticking to a budget is what I found to be the hardest part of budgeting, particularly for items which you have limited control over like the price of petrol/gas.
Some things I found handy include:
- Be realistic when setting up your initial budget numbers – If you set a budget which is too difficult to stick with, you will end up feeling dejected and are more likely to fail.
- Start off small and work your way up – Make sure you remember to keep revisiting the budget and tightening it where possible (It gets easier the more you do it).
- Avoid paying with Credit Cards – Credit is a dangerous thing if you let it spiral out of control. If you are new to savings and budgeting, my experience is to avoid credit as it’s just too easy to buy non essentials.
- Only buy what you can afford and what you have budgeted for – If it’s not in the budget then there needs to be a good reason to be spending the money. As a simple rule – if you don’t have the money in your account, you can’t afford it.
- Don’t get sucked in by interest free periods – Interest free deals can be very tempting, but they can also be dangerous to your budget. Remember – no matter what you buy, it all has to be paid back eventually.
- Keep the budget up to date – It can be difficult remembering how much a bill or grocery shop was, so make a habit of recording spending as it happens and update your budget when you get home.
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