Budgeting is perhaps one of the most basic and the most effective tools for managing your money, whether it's your personal finances or your business cashflow. Yet despite how powerful a simple budget can be, most people will avoid doing one and simply drift along with a very vague idea of where their money is actually going.
The benefits of budgeting are many and varied, and a handful of these include:
1. It enables you to see exactly which direction your money is going. If nothing else, this makes you more aware of what is coming in and how fast it's going out.
2. It helps you organise your spending and saving. We always recommend that people save first and then spend what is left over. With a budget, you can really see whether this is happening or not.
3. It enables you to save for expected and unexpected costs that come up.
4. It keeps you focused on your money goals and how you're tracking towards them.
5. It helps you determine whether you can take debt on and if so, how much.
6. It gives you control over your finances.
So what makes a good budget? The key is to keep it simple and to outline your income and expenditure in a way you can easily understand. A good way to get started is to:
1. Gather all your financial information, such as bank and investment account statements, recent utility bills and any information about the money you have coming in and what you spend it on
(online banking is a great way to access this information). The more information you have, the better.
2. Record all sources of income, such as your salary (net income, or take home pay, is fine) and outside income (e.g., interest on investments), etc. Write down your total income as a monthly amount.
3. List all of your expenses, such as rent or mortgage repayment, car repayment, mobile phone and data, insurance, groceries, petrol, travel, utilities, entertainment and education expenses. Make sure
you don't leave anything out - a common error is to exclude 'one-off' or infrequent payments.
4. Split expenses into fixed and variable. Fixed expenses broadly stay the same each month (mortgage/rent, insurance, car loan, etc). Variable expenses change from month to month (groceries, petrol, entertainment, etc) – so you'll have to average these.
5. Once you have totalled your income and expenses you can see the bigger picture. If your income exceeds your expenses, you're off to a good start. If it's the other way round, like many Australians,
you are living beyond your means and it's time to make some changes.
Make adjustments, so you can balance your income and expense columns. This means all income is accounted for and budgeted to a specific expense, including contributions to a savings vehicle, whether that's an investment fund, superannuation, or just a savings account. If your expenses exceed your income, look at your variable expenses to see what can be cut – or consider how you might be able to increase your income, by taking a second job or working to get a promotion.
If you would like help with your budgeting, please contact our Dominique Schuh in our office on 54804877
and she will assist you with some of our budgeting tools.