How To Create A Budget

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Budgets are a very important tool when it comes to managing your money. They allow us to keep an eye on money coming in and out of our accounts over a regular period of time, whether it be weekly, monthly, yearly etc. Budgets lay out a clear outline of our income versus expenses and indicate where we are putting too much or too little of our money. Although budgets can often seem intimidating and complicated, the whole premise for a budget is to simplify and achieve realistic financial goals.

In order to have the most effective results, ensure that your budget is as detailed as possible, breaking down all your different types of income (INCOME PILLAR PAGE) and a list of all your regular expenses.

Simple steps when creating your budget include:

Gather Old Financial Statements: Previous years financial spending can be a very good indicator of your spending habits and allow you to identify where you can cut back costs. Use these financial statements to set up an allowance for your different types of expenses as well, remember to be realistic and set yourself an achievable target.

Record Your Income: The second step to creating a basic budget is to record your income, this can include all the different sources of income you receive whether it be through work, investments, rent etc. Make sure you break this down into either weekly, fortnightly or monthly allotments, whichever you are wishing to follow your budget by.

Record Your Expenses: Once you have recorded your income, get onto your expenses. Create a list of all the expenses you know you are going to have come through within whatever period of time you are laying your budget out. This should include both your fixed and variable expenses.

The best way to do so is by going through your old financial statements you gathered in step one and making sure that every fixed expense is included (even the ones you don’t pay every month, for example, car registration). In regards to your variable expenses, again read through your financial statements and highlight how much you are spending on average. Then give yourself a budget to work within, whether it be $20, $50 or even $100. Remember to be realistic and stick to it. 

Compare: After you have acquired a sum for both your total income and total expenses simply compare the two against each other and interpret the outcome. Hopefully, you should receive a positive number.

Set Up an Expense Savings: It is important to allow yourself to grow over time and indulge in luxuries such as that dream holiday, however this shouldn’t be what you try to save for in your official savings account. An expense savings account is something that I believe is important for everyone. This is for your small to medium savings goals that you might allow yourself to spend maybe every month, quarter or even year. 

Savings: Finally, the last real step is to make a savings account. I can’t stress how important this is. Sign up for a savings account with a bank of your choice and commit a percentage of your income to it regularly. Setting up automatic bank transfers are a handy tool to use as it takes the thought out of it and doesn’t require you to have to do anything.

These are some simple yet effective steps that can be used by you to break the fear and finally create your first budget. We know they’re not the most attractive thought, but they are essential life skills that everyone should have. 

A final note, try to revisit your budget on a regular enough basis as a means to keep it updated and fresh, there is no point making one if you’re not willing to use one!