Budgeting and financial things can often seem complicated, but they really don’t need to be. In fact, creating your first budget is much easier than you think!
So before you start, remember the Golden Rule: You cannot spend more than you earn! If you get that right then you’re well on your way to winning at finances.
So where to start? Let’s break it down into 5 steps:
1 – Decide if you want to budget per week or per month
This really depends on you and the deciding factor should be how often you receive a paycheck. Some people get paid every week, every second week or once a month. You need to decide what is easiest for you regarding a budget.
Generally speaking a monthly budget is the standard, but you may be a weekly earner and you feel it makes sense to budget per week with regular expenses coming off and regular intervals.
The whole idea of a budget is that it must be something that works for you so that you will actually use it. No use creating something that looks pretty on paper but has no practical purpose.
2 – Write down all you earn
If you’re like most people, you probably just earn a salary. Perhaps you have a rental property though or some other source of income. Write these down, but stick to fixed and reliable income only.
If you have a side-hustle which sometimes earns you money (but not always) then rather don’t add it to your budget for now.
3 – Figure out where your money goes
This is possibly the hardest part of the process. The best solution for this is to spend a month or two writing down absolutely every cent you spend. This doesn’t need to take up time or be admin-intensive. Simply a note on your phone or something in your diary. Keeping track of your money this way will give you invaluable insight into your spending habits!
You can however create a budget now and keep track of your expenses to verify and tweak the budget you have. To find out where your money goes start looking at these:
your bank statement for the past month or two will give you insight into all your automated payments as well as other expenses
your credit card statement will show you all your day-to-day spending – be prepared to be shocked when you add up expenses in various categories
any receipts you find lying around the house or in your wallet – if you paid cash for the items you should indicate that
Now summarize the expenses into categories such as Eating Out, Clothing, Make-up, Groceries, Gifts, Fuel, Insurance, Rental, etc. I also like to have a category called General (this is for random things that don’t happen each month and that don’t really fit into another category).
You should have an idea now of where your money goes.
4 – Tweak it till it works
Now that you know how much you earn and how much you spend, you need to tweak things to ensure that you earn more than you spend. If this is not the case then you either need to earn more or spend less; those are you only options. You need to be harsh with yourself and make it work.
Also, one purpose of a budget is to find ways to save and to work towards whatever financial goals you have. Knowing what you spend your money on can be a scary. You don’t need to cut down and change things over-night, sometimes a slower process makes it easier. Find one category where you know you can definitely save money, and then set a target for yourself. Over the next few months continue reviewing and tweaking the budget finding more efficient ways to do things.
You can add additional info and budget by payment methods such as Automated Bank Payments, Cash, Credit Card, Store Card, etc. You don’t need to do this now but as you revisit the budget you may want to do this. The process of budgeting should be fluid and you’re allowed to change it as you learn more and become more experienced in managing your money.
5 – Keep it simple
Now that you have it all, try to keep it as simple as possible to maintain. As mentioned, a budget really needs to work for you and it needs to be something that excites you when you look at it.
For the admin-lovers out there this could be a large spreadsheet with details and graphs and pretty pictures, but be sure it’s not too time consuming update. If you’re less of an admin person then you probably want to summarize categories and have just the bare necessities. I like to use the YNAB app and if you sign-up with the link you can get a free month over and above the trail Seems like a deal!
There is no right or wrong way to budget and to me the most important is that it makes sense to you and is something that you will actually use!
For more details along with video interviews and a downloadable workbook, check out the Budgeting 101 course.
So start now, don’t delay!