How to easily setup a budget
Setting up a budget can get a bit confusing, especially in an age when consumer spending is very high and out need for new products and services continues to grow.
The trick with setting up a budget is to set yourself long term goals and use short term strategies and goals to get there.This will be the basis of setting up your first successful budget.
Learning how to setup a budget is easy and fun and actually quite enlightening, so I suggest you relax, grab a coffee and have a look around at our budgeting tips so that you can start tomorrow off with a bang and a brand new budget!
The easy steps to setup your budget
Setting up your budget is as easy as following these steps:
- Determine your monthly income
- List your fixed expenses
- List your variable expenses
- Evaluate your income VS your expenses
- Tracking your expenses to learn
- Adjusting your budget as you go
- Evaluation of your budget
Determine your monthly income
Find out how much money you make per month, remember to take into account your tax rates and the amount of money you have in hand after tax as we want figures that are raw and in hand.
Any secondary sources of income? Remember to include those also, whether it be interest payments on your savings or odd jobs you do locally – remember to include them all in your income list.
List your fixed expenses
Fixed expenses are unavoidable costs that you must pay each month. An example of a fixed expense is something like a mortgage payment, internet bill, phone bill and other items like loan repayments.
I like to include my savings account in this list, so that you start to see your savings as another bill to help you reach your goal quicker.
List your variable expenses
Variable expenses are items that you spend money on each month that do not have a set value. This can include groceries, eating dinner at a restaurant, buying clothes and going to the movies. These items are variable because they allow you to cut back on them if you wish and are not critical to your monthly budgeting.
The reason we need to list these items is that one of the keys to a successful budget is to factor in some spending on variable expenses so that you don’t lose motivation. If you need help finding your variable expenses, print out 3 months of your everyday accounts transaction history – this can help you form the basis of where you spend your money on non essentials.
Evaluate your income VS your expenses
By seeing how much money is coming in versus how much money is going out, we should start seeing where our money goes and how we can relieve it.
What we want to do now is look at the expenses and income and find a way to match every dollar you earn to an assigned part of your budget, this is called zero-dollar budgeting. Every dollar should be accounted for, whether it be for entertainment or savings – you will want to assign a dollar value to every element of your life, the more concise the better of course.
If you find that you cannot match your numbers, you may need to start looking at ways to tweak your budget. Your variable expenses should naturally be the first items to be reduced. Should you find yourself with money left over at the end of the month, I suggest you congratulate yourself and put the money into your nest egg account and enjoy the fact that you are one of the few people in Australia who manage to not waste their entire pay cheque per month!
If you were to find yourself not able to reduce your variable expenses anymore, you may need to look at fixed expenses and your options for lowering them. This can be done through refinancing a mortgage, cutting back on extras like pay TV and other bills.
Tracking your expenses to learn
Once you have your budget created, you will need to find a way to track your monthly expenses. I suggest you use a budgeting spreadsheet or an online product like ANZ Money Manager, these will both allow you to keep a tab on your spending.
You can also keep a spending journal or diary, these are amazing at helping you acknowledge just how much money you spend and where it ends up.
Adjusting your budget as you go
Unexpected things happen. Your car may need new tyres, your dog may need to have medical treatment – just remember to add it into your expenses and reforcast how you can continue to stick to your budget. Remove things from your variable category for that month so that the money is shifted directly into your emergency requirement.
Evaluation of your budget
Follow your newly created budget for exactly one month. At the end of the first month, evaluate how you went with your budget.
Ask yourself the following questions:
- Where did I overspend my budget?
- Where could I save more money next month?
- What was the hardest thing about my budget?
Your thoughts on this setup
Did this method of setting up a budget work for you? Tell us how and why!
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