Feel as if your personal finances need pulling in to line but find all the advice overwhelming?
Here’s some simple tips that will give you the confidence to tackle your budget head on!
Making and following a budget can feel a bit like being on a binge diet. You try out a never-ending parade of the newest trends only to lose track of the bigger picture and ruin your progress by binging on chocolate, or in the case of your budget, going on a massive buying spree.
But having control over your personal finances is not some giant conspiracy or secret the world is trying to hide away from you. Budgeting doesn’t need to be hard, if you follow the key rule of managing your personal finances, which is: never spend more than you earn.
What this simple rule boils down to is that if you have more money going out than you have coming in during the month, than your personal finance situation is not stable.
If you’re keen on turning the state of your finances around, and ending the living pay-check to pay-check cycle, we have some simple tips for you.
Tips for creating the ground zero of your personal finances – A budget:
Before starting your budget, it’s important to take stock of all your expenses over the month. This will help you assess your blind spots and stop them from holding you back from where you want to be. Unless you can remember all the times you swiped your debit card over the month off the top of your head, this part requires you checking your bank statement for all the times you spent money.
Its important to leave no stone unturned, even if you’re embarrassed over your Krispy Kreme purchases over three days in a row, it’s still important to write them all down. Doing this also helps raise awareness of your bad spending habits that you have been sweeping under the rug until now.
When creating your first budget (or your first budget that lasts), you’ll first want to select an organization system that is intuitive for you to use and easy for you to keep updated. If you’re more old-fashioned, try reaching for your trusty pen and paper. Whereas if you’re the tech-savvy type, seeing your finances mapped out on an Excel spreadsheet may be just what you need. It doesn’t matter what system or methods you use, as long as it works best for you.
What’s coming in
The basic aim of having a budget is to see the flow of money coming in and out of your account and to understand where your money is going. To gather all this information from your budget, you will first need to list all your income on the far-left column of your budget. Income includes anything from your regular wages to a one-off tax refund. Basically, anything coming into your account counts as income.
What’s going out
Directly opposite your income column you will write down all your expenses. It’s best to start with all the most important ones first – so obvious ones like rent, food, bills, etc. Next, you’ll want to set aside a portion of your income to account for all your non-essential expenses. Non-essential expenses is basically all the expenses that aren’t necessary to your survival but are more like luxuries or treats.
Calculating your non-essential spending
How do you know how much is too much, or not enough, to set aside for non-essential expenses? That’s where all your expense stock-taking comes in handy – it gives you a record of all your spending habits, so it’s now up to you to decide if all those expenses are actually necessary, or as Marie Kondo would say “do they spark joy?” For instance, what a lot of people realise once performing this exercise is that there are a lot of expenses that they have just forgotten about, like a membership for a gym they never go to or a service they never use anymore.
If you can manage to cut any fat off your non-essential expenses allowance it might be useful to think about sending some of it to your savings account. It might not be the most fun thing to do with your money, but it’s such a big factor in allowing yourself not to live pay check-to-pay check anymore.
You do you
This example of making a budget might not work for everyone, some of you may have your own unique way of managing your income, and your finances will be thriving from it. Some people don’t need any budgets at all, being the masters of self-control and saving that they are. But when it comes to budgeting, you don’t have to be defined by any hard style or template.
Just remember the objective is to make sure that you have more flowing in than flowing out.