How to create a budget

by Mark Moir - Beanstalk Online Investments Financial Planner

As the new financial year starts, we all have financial resolutions set in our minds. One of the best ways to get your finances under control is to have an effective household budget that keeps account of your earnings and what you spend your money on. Sticking to your budget can help you manage your spending and make sure you are able to set some money aside for your future self. Your budget can help give 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. Gather information

In order to draw up an effective budget you need to set aside a fair chunk of time (3-4 hours should suffice) as this process cannot be rushed. Gather all the paperwork you need before you get started so that you're not frantically looking for items to get started. This will include bank statements, household bills, credit card statements, policy statements, investment statements and income statements.

2. Calculate your income and expenses

Add up your income and list your expenses. Be thorough when adding up your expenses because if you miss something it could put your entire plan at risk. Remember to include other ad hoc expenses that you don't pay monthly but that will still have an impact on your finances - for instance your annual dental check-up or break away.

3. Set savings and debt repayment goals

By subtracting your expenses from your income, it will show you whether you have a shortfall or surplus of money. If you’re making more money than you're spending this is good news! Use the extra money to save or pay off any debt you may have, quicker.

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On the other hand, if you're spending more than what you are earning then it's time to cut back on your expenses. Organise your spending into "wants" and "needs". Start by getting rid of that daily takeaway coffee, restaurant dinners and going out to the movies. Tell yourself this will only be temporary whilst you sort out your finances. If you don't do this, you could end up deep in debt.

4. Keep on top of it!

Most people are not successful at sticking to their budget because they are either not disciplined enough in their spending or don't adjust it according to changing circumstances. If you end up paying for an unforeseen expense like a burst geyser, record it and adjust your spending accordingly. If you suddenly get a bonus, stick 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 to stick to their budget is that 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 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. We're here to help with this if you need some guidance.

Are you thinking about starting your journey towards financial stability and independence? Download our budget worksheet using the button below.

Download our Budget Worksheet

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