Unless you had the good fortune of being born with a silver spoon in your mouth and more money that you could spend in a lifetime, you need a budget.
You need a budget to serve as a guideline of how much you should be spending and send warning bells to your brain when you’re overspending. Without a budget you may find yourself living pay cheque to pay cheque and more often than not, running out of money before the next one is due.
The best thing about a budget: it’s the first tool and step to saving money effectively.
How to create a budget
Be completely honest with yourself about your wants and needs. Exercise some constraint, but no need to be a complete Nazi about your money. If you love music, books or going to the movies, absolutely allow yourself those pleasures in your budget.
When it comes to food — at the grocery store or takeaway — how much should you be spending?
When it comes to rent, how much can you afford?
A great golden rule of thumb I always go by comes from girlosophy author Anthea Paul: When you get paid, spilt your money into three parts. Use one third to pay yourself, one third to pay the earth (bills, debt, charity) and one third to pay your future.
If you earn $3,000 per month, split the money into three parts. Set aside $1,000 to go into a savings account, budget your rent or mortgage, bills, utilities, insurances, charity contributions and other bills to $1,000 — so if those things currently cost you more, you know you’re over your budget and need to find a way to cut down. Finally pay yourself $1,000 and ration your allowance from week to week — don’t blow it all in one go, or on one dress. I usually include groceries in the ‘pay yourself’ budget as well.
$1,000 seems like a lot of money to put away when you have debt, so the next question is should you pay off your debts before you start saving?
The answer is clearly yes, because your debts will accumulate more interest than money sitting in a saving account. So until you’ve cleared your debts, consider ‘paying your future’ as ‘paying your past’ — although, if your debt is student related, then it was a loan to better your future. It’s a drag to pay, but alas, a necessarily evil for most.
However, if your debts are related to car re-payments and plasma tvs, and the repayments are causing you to run out of cash and use your credit card at the supermarket, the only solution is to sell those items. You basically want to strive for a financial state that reflects where you are in life. Put simply, live within your means and you’ll be alright.
Tell us your top 3 tips for budgeting
We would love to hear your top 3 golden rules for creating a realistic budget.