If you’ve never made a budget before then you should really start with something simple. Not that you ever really have to get too complex, but as you work with a budget over time you may find things that you want to change or situations that don’t work easily with your budget.
Understand your spending habits
Before starting it would be good to know how much you’re currently spending. If you don’t have a clue then take the 30 Day Challenge of keeping track of each and every expense. It’s really important to understand your spending habits as you probably don’t realise (or want to admit) how much money you really spend!
Keep track using your phone, a notepad or a simple spreadsheet and track every everything you spend money on, even the smallest amount! It’s a good idea to do this in conjunction with your budget so that you can amend things and find your “groove”. Your first budget will probably not work very well but as you change it over time to better reflect your true expenses, you’ll find how powerful it can be!
Start your budget
I like to use a spreadsheet for my budgeting as it makes the maths easy; you can however use any tool including a notepad and pen.
Start off with your income. You should hopefully know how much you earn each month, but if not, go find your salary slip. I would use my “net salary” (the money that is actually paid into my account) as my income as there is nothing I can do about taxes and other deductions off my salary. Of course, you may have access to a company store or canteen where purchases are automatically deducted off your salary – and these expenses you have full control over. So, use your full salary less taxes less compulsory expenses that you don’t control. (You can use your gross salary and show taxes on your budget, but that depends if you want that kind of detail)
If you have any other stable income (that you can rely on) then add it in as well. Examples would be over-time that you always work, rental income or a personal loan that someone is paying back.
With the Income section completed, now it’s time for the hard work. You need to categorize your spending into categories that make sense to you. Everyone has different spending habits and there is no “one fits all” solution. Categories could be things such as:
- Satellite TV
- School fees
- Eating out
- Club memberships
- Online subscriptions
- Other (for small things that don’t fit into a category of their own)
Although most expenses are monthly, some may be annual expenses (e.g. club membership) or possibly even quarterly expenses. The best way to handle these is to work out the monthly amount and budget per month and save the money in a specific savings pocket so that you don’t get a shock when you need to pay the money. It’s really easy to do once you’ve set up your “system” and reminders on your phone.
The most important aim of a budget is to ensure that you earn more than you spend! If you don’t, then you have to spend less. It’s that simple, but in practice it may take a few months to change your spending habits. You may want to consider cancelling store cards as these make spending far too easy!
Now that you have decided how much you can spend in each category, you must stick to the budget! You will find that you cannot control expenses exactly as you plan as things happen and we react accordingly. However, if you overspend on the Groceries category then you need to underspend somewhere else to ensure that your overall expenses do not exceed the budget.
I also like to have a category for “Other” expenses which are often unplanned things that come up.
Once you have created your budget, see if you can find any extra cash or ways to save money.
Create your budget now! It’s great reading about things but you need to take action!
Pick up a pen & paper or open a spreadsheet and start writing up your income and expenses!
Spend less than you earn!!
Considering that you’ve read this you may also want to look at my 5 Steps to creating a budget.