When people hear the word ‘budget’ they often think about tedious calculations and stressful spending decisions. In reality, once you’ve learned how to budget, you’ll be proud of your newfound financial skills and confidence.
Creating a budget doesn’t have to be a painful process. It’s all about learning how to control your spending, make smarter financial choices, and save for the things that matter to you. Whether you’re planning a holiday or building an emergency fund, budgeting skills come in handy time and time again.
This complete guide will help you learn how to budget like a pro in no time at all. Stop imagining a budget as this big, scary monster and see it for what it is: the key to an organised life.
Why Do You Need A Budget?
A lot of people make the mistake of thinking they only need a budget if they’re in a tricky financial situation. In reality, everyone needs a budget plan, from students to millionaires.
Not only does your budget help you keep track of your spending, but it’s also a great way to learn more about your habits. You might be spending more than you earn, or you might realise there’s room for greater savings or debt payoff than you originally thought. In essence, using a budget will give you greater insights into your own spending habits.
Having a budget is also an effective way to move closer to your goals. Maybe your goal is to go on holiday, buy a new car, save for Christmas, or create a stable financial environment for yourself. By setting up a budget, you can easily see how much money you have coming in and have greater control over where it goes.
Setting Up A Budget Plan
What is a budget? A budget plan is simply a way to record the money you have coming into your accounts (income) and the money you spend (expenses). It’s like a paper trail for your financial situation, and it’s always changing depending on your needs.
How do you set up a budget? You have a few different options. You can go old-school with a simple pen and paper, or choose an electronic tracking system. There are a number of budgeting apps that do all of the heavy lifting for you, but it’s still a good idea to write everything out where you can see it clearly.
Budget Help: 5 Steps to Create Your Budget
Now it’s time to create your budget. Whether you’re using a pen and paper or an electronic device, you’ll need to follow these steps below. It can feel a bit intimidating to compile your income and expenses all in one place, especially if you’ve lost track of these numbers over time. The good news is it will only get easier from here.
Step 1: Income
The first thing to write down is your income. You need to establish exactly how much money you have coming into your account each month. Include any and all types of income, including upcoming promotions as well as pensions.
If you work for a company and get paid a regular monthly wage, then this shouldn’t be too complicated for you. However, if you’re self-employed or receive sporadic wages you’ll need to factor this into your budget carefully. In this type of situation, it’s a good idea to work out your average monthly wage over the last 6 months to see how your income varies throughout the year. Finally, remember to take out any tax deductions.
Step 2: Fixed Expenses
Now you need to figure out where your money is going. This can be an eye-opening process, so take your time. Review your bank and credit card statements to determine your fixed expenses. These are bills or expenses you pay every month. Here are a few examples of fixed expenses:
- Mortgage or rent
- Car payment
- Insurance
- Utility bills
- Gym memberships
- TV and music subscriptions
- School expenses
- Debt repayment
Remember that these are the expenses you pay month after month. We’ll talk about variable expenses next. If you’re currently saving towards a goal, you’ll want to include any monthly payments towards your savings in this category as well.
Step 3: Variable Expenses
Next, list your variable expenses. These are the expenses that are likely to fluctuate each month. You’ll likely need to estimate average spending in some areas like groceries and gas. Don’t forget about “luxuries” like clothing, entertainment, and dining out. Here are a few examples of variable expenses:
- Groceries
- Dining out
- Gas/transportation
- Clothing
- Seasonal holidays
This is the list you’ll be most likely to cut when it comes to decreasing your savings. While you always need things like groceries and transportation, you might be surprised at just how much you’re spending. It’s good to come face-to-face with these numbers.
Step 4: Calculate
Once you’ve established the cost of your monthly income and expenses, it’s time to do some basic bath. You’ll need to subtract all of your expenses from your income. What you’re left with is the amount of income you keep each month after all other expenses have been paid.
Are you left with a surplus or a deficit? If you have a surplus, this is a good sign. You might choose to budget money towards savings or debt payoff. However, if you have a deficit, meaning you’re in the negatives after all expenses are accounted for, it’s time for some adjustments.
Step 5: Create A Plan
Now you have all the information in front of you, see how much you can save each month. This is your budget, but you don’t have to keep it as-is. Reflect on your goals. What do you want to accomplish? How can your budget help you get there?
If you’d like to save more each month, consider how you can cut back on other things. Perhaps you could go out to eat less or carpool a few times a week. These small differences matter. On the other hand, if you’re left with a surplus in your budget, you might budget money towards more savings plans.
Budget Advice: Keep Growing And Changing
A budget isn’t something that you set up once and forget about. You’ll need to routinely check whether you’re hitting your monthly goal and monitor if you’re overspending each month. Don’t worry if things don’t go to plan straight away. Simply review and make the adjustments you need to get back on track.
If you have a goal and want to put an effective budget plan in place, simply follow our guide above. You now know exactly how to create a budget like a pro and hit your financial targets with ease.
If you’d like to read more about how you can save money and avoid debt, take a look at our other budgeting articles. If you’re seeking expert help in managing your money, have a chat with one of our experts today. We’re here to help!
We can help you with professional debt and budgeting advice. Our discussions are obligation-free, private and 100% confidential. It’s time to get serious about your budget to make your goals a reality. Give us a call on 1300 368 322, chat with us online or fill in the enquiry form below.