Budgeting your income and earnings
The trick is understanding exactly how much money you earn.
When creating a water tight budget, it pays to understand your overall earnings. People often forget to list all sources of income; common items forgotten include dividend payments from shares, over time shifts at work or even the items you sell from time to time on eBay or Gumtree.
The key to a great budget plan is listing, forecasting and monitoring your incoming dollars; don’t leave a single dollar unaccounted for.
The frequency of your income and earnings
When filling out your budget spreadsheet, remember to list all incoming earnings and the frequency, whether it be;
- Daily earnings
- Weekly earnings
- Monthly earnings
- Yearly earnings
Income that varies (or that you can’t predict)
If you are like me, on any given month my earnings could go up or down. If this is the case for you, create a forecasted income line item in your budget with a monthly frequency to give yourself a rough estimate of extra money coming in. The more accuracy you have in predicting income, the more realistic your entire budget will be.
Budgeting your expenses and spending
How to identify expenses and learn where you are spending
When creating a budget, the key to establishing how much leftover money you have (disposable income, money to save, etc) is listing your expenses and regular spending habits.
It’s wise to note that an ‘expense’ is very different to plain old ‘spending’.
Below are some examples of how an expense is different to spending:
An ‘expense’ is often fixed and recurring, things like:
- Mobile bills
- Broadband costs
- Rent or mortgage payments
- Daily transport costs
A detailed budget spreadsheet will factor in a range of these expenses and give you pre-listed options to choose from.
Your ‘spending’ is often off the cuff purchases you make
This ‘spending money’ is often funded via any leftover cash flow you have in your budget. The worst place this money can come from is your credit card that you don’t pay off in full each month (e.g. you accumulate debt due to spending).
As I am someone who channels all of my monthly spending through my credit card (to earn Frequent Flyer points), I am able to identify my core spending patterns. Examples include:
- Takeaway food/fast food
- Taxis after work drinks
- Daily coffee and toast from cafes
- Purchases for my babies from Kmart, BIGW, etc
These items are funded on a regular basis via personal spending money. If I wanted to improve my budget, I could list a line item entitled ‘Takeaway’ and put a monthly pot of money towards it to better account for my spending by simply turning it into an ‘expense’.
Expenses that vary by month
Many people have variable monthly expenses. For instance, a mortgage repayment can go up or down depending on the number of days in a particular month.
If this is the case, budget for the worst case scenario – this means you will never be caught short and will always be in surplus. I do this with my mortgage; I always assume there are 31 days in a month (when really it’s only 7 months of 12 that have 31 days).
How to identify your spending patterns/expenses
Do as I did and channel all of your spending via one source (credit card or debit card) so that you can evaluate your recurring spending patterns at the end of the month. I was quickly able to print my statement and see incredible patterns I had no idea existed; like my penchant for fast food after an evening of work drinks coupled with a taxi home at a premium price.