If you’re trying to save and keep on top of your expenses without keeping track of what’s going out and what’s coming in, you’re unlikely to succeed in achieving your financial goals. One of the best ways to get your finances under control is with an effective household budget that keeps account of your earnings and what you spend your money on.
If you stick to your budget it can help you manage your spending and make sure you don’t use more than what you earn. It will also aid you in keeping some money aside for your savings. If you have a goal, such as paying off your debt, saving up a deposit for your home or living debt free in retirement, your budget can help give you a clear picture of how you can work towards what you want to achieve.
Here’s a guide on how to set up a budget and what you need to do so that it’s effective:
1. Take some time out of your day
When you sit down to do your budget make sure you leave yourself adequate time to do so. You don’t want to rush this process. Gather all the paperwork you need before you get started so that you’re not frantically looking for items to get started. Get your bank statements, household bills, credit card statements, information on your savings and pension and saving contributions. Also, gather all info of any income you are earning.
2. Calculate your expenses
Add up your income and list your expenses. Be thorough when adding up your liabilities because if you miss something it could put your entire plan out of kilter. Remember to also take into account other intermittent expenses that you don’t pay monthly but that will still have an impact on your finances like your six monthly dental check up.
READ: How the Money Makeover contestants have used their budget to kickstart their journey to financial freedom
3. Set savings and debt repayment goals
Subtract your monthly expenses from your income and this will show you whether you have a shortfall or not. If you’re making more money than what you’re spending this is good news. Use the extra money to save or pay off your debt quicker.
However, if you’re spending more than what you are earning its time to look at your expenses and see where you can cut back on. If you don’t do this, you could end up further in debt. Start by getting rid of that daily takeaway coffee, restaurant dinners and going out to the movies. Tell yourself this will only be temporary until you can pay off your debt.
4. Keep on top of it!
Most people are not successful with keeping to what they set out in their budget because they don’t stick to it and adjust it accordingly. If you end up paying for an unforeseen expense like a burst geyser, then record it and adjust your spending accordingly. If you suddenly get a bonus, input that in your budget too and use some of it to pay off your debt and plump up your savings.
5. Be realistic
Another reason why people fail in sticking to their budget is because they’re not realistic. They’re either too lax or too strict with themselves. Keep a bit of money aside to treat yourself, especially when you’ve reached certain milestones like paying off your all your clothing accounts. If you don’t treat yourself, you may get despondent and give up. If you’re too relaxed about it then there’ll be the temptation to overspend. If you’re not certain about what to do, speak to an accredited financial advisor who can help you go through it all and create a realistic action plan.