In many households, budget is a dirty word. It implys restrictions of finances and limitations on shopping. Oh what we'd give to be rich and not need a budget. Let me tell you now, the rich live on a budget. How do you think they became so wealthy and stayed that way? So lets get started on helping you become debt free!
1. Make a list of all your expenses eg rent/mortgage, loans, credit card, electricity, telephone/internet, school fees, uniforms, insurances, vehicle registration, extra school expenses - camps, bus fares, groceries,fuel, haircuts, medical, bank fees etc.
2. Make 6 columns beside the list. Mark them Week, fortnight, monthly, quarter, half year, year. Put in the amounts you pay under the appropriate column. eg electricity $300 each quarter, Mortgage pay $700 each month. Some bills vary, like electricity & telephone, put them in separately.
3. Next, total each bill for 12 months. eg Weekly amounts x 52, Fortnightly x 26, Monthly x 12, quarterly x 4, etc. Put total per bill in Year column.
4. Now divide the Yearly totals by the number of paydays you receive each year. eg Fortnightly = 26. If you receive income from different sources on a regular basis, use your main income payday.
5. Add the new amounts together. This is the amount to be deducted each payday BEFORE spending. You can either transfer into a separate account, withdraw total and place in separate marked envelopes or see if your bank offers a Bill Pay account. There are pros and cons for all so chose the best system for you.
If you feel that you will dip into your budget, then perhaps a bill pay account is best. Personally I like Bill Pay as the bank transfers the budgeted money automatically from my account into my Bill pay account. Everytime I receive a bill,the bank will pay it, whether I have enough money in that account or not. It all works out over the year and is totally stress free.
6. Are your expenses more than your income? Obviously you need to cut costs or find extra income. I will go into this more on a different post.
7. Is your income more than your expenses? Well Done!
The next step is to put 10% of your income away for a rainy day (retirement). This is never to be touched.
8. Still have money left over? Awesome. Then put 20% of your income away in another account. This is your emergency fund. Unexpected incidents happen in life and we are not always prepared. Now you are.
9. Any income left over is yours for luxury items, extra savings, whatever you want. You can even pay off your loans/credit cards earlier and save on interest by paying extra each week/month.