I am afraid that if you want to get ahead financially then you probably do need to create a budget. Creating a budget may not sound like the most exciting thing in the world to do, but it is vital in keeping your financial house in order. Before you begin to create your budget it is important to realize that in order to be successful you have to provide as much detailed information as possible. Ultimately, the end result will be able to show where your money is coming from, how much is there and where it is all going.
It’s not difficult and should only take around an hour.
Step 1- Gather every financial statement you can. This includes bank statements, investment accounts, recent utility bills and any information regarding a source of income or expense. The key for this process is to create a monthly average so the more information you can dig up the better.
Step 2 – Record all of your sources of income. If you are self-employed or have any outside sources of income be sure to record these as well. If your income is in the form of a regular payslip where taxes are automatically deducted then using the net income, or take home pay, amount is fine. Record this total income as a monthly amount.
Step 3 – Create a list of monthly expenses. Write down a list of all the expected expenses you plan on incurring over the course of a month. This includes mortgage deduction, car payments, car insurance, groceries, utilities, entertainment, dry cleaning, haircuts and essentially everything you spend money on.
Step 4 – Break expenses into two categories: fixed and variable. Fixed expenses are those that stay relatively the same each month and are required parts of your way of living. They included expenses such as your mortgage or rent, car payments, cable and/or internet service, credit card payments and so on. These expenses for the most part are essential yet not likely to change in the budget.
Variable are the type that will change from month to month and include items such as groceries, petrol, entertainment, eating out and gifts to name a few. This category will be important when making adjustments.
Step 5 – Total your monthly income and monthly expenses. If your end result shows more income than expenses you are off to a good start. This means you can prioritize this excess to areas of your budget such as superannuation and paying more on your mortgage or credit cards depending on how it looks. If you are showing a higher expense column than income it means some changes will have to be made.
Step 6 – Make adjustments to expenses. If you have accurately identified and listed all of your expenses the ultimate goal would be to have your income and expense columns to be equal. This means all of your income is accounted for and budgeted for a specific expense.
If you are in a situation where expenses are higher than income you should look at your variable expenses to find areas to cut. Since these expenses are typically essential it should be easy to shave a few dollars in a few areas to bring you closer to your income. It’s amazing how much eating out and entertainment and for the ladies buying that bargain top can add up.
Step 7 – Review your budget monthly. It is important to review your budget on a regular basis to make sure you are staying on track. After the first month take a minute to sit down and compare the actual expenses versus what you had created in the budget. This will show you where you did well and where you may need to improve.
Step 8 – If you would like a free template to create your own budget click on the link and send me your details so I can send it to you.
Step 9 – It is absolutely ok to ask for help! If things are out of control and credit cards are at their limit it may be time to consider a refinance on your home loan to get things on the right track so you can move forward without having to bury your head in the sand because it’s just too scary to look at.
Call me if you would like to consider a refinance option on your mortgage to help you get ahead! I can be contacted on 0411 777 876, Remember there is always a solution, Deb