If you live within a budget, you are more likely to:
- Avoid excessive debt
- Have money set aside for emergencies
- Have savings accounts for things like holidays and a new car
Sticking to a budget isn’t about depriving yourself of the things you need (or want!). It’s about making sure you have enough for your financial commitments.
In a nutshell, you should pay your essential expenses and your savings deposit first, then the money left over is your spending money. Many people who struggle, they pay their essential expenses, use their spending money and then wonder why there is nothing left over for savings?
So, how do you put together a personal or household budget?
- Firstly, work out why you need a budget. It could be to stay on top of bills, save for emergencies, pay for your children's education, or save for a holiday or a house deposit.
- Track your spending over a week, fortnight, or month. Write down every dollar you spend. Include the amount, item, and date. You should do this for both cash and card purchases. A good way to do this is to keep or take a photo of every receipt you get. To make sure you've recorded all your expenses, look at your bills or bank statements.
- Look at all your transactions and highlight what are 'needs' (essential items you need to live such as food, rent/mortgage, and utility bills).
- Next, add up your income (after tax). This could include wages/salary, interest from savings, pensions etc. and subtract your expenses (transactions).
- Expenses include rent or mortgage, utility bills, council rates, food and drink, medical costs and insurance, school fees, pet costs, vehicle expenses, credit card and personal loan repayments, savings for emergencies etc.
- The money you have left after expenses and any savings deposits that you make, is your spending money. This money is for 'wants', such as entertainment, eating out and hobbies.
- Plan for what you want to do with your spending money. This will help you to keep within your limit. Keep track of your spending so you always know how much you’ve got left. Plan your budget for the frequency you get paid. For example, if you get paid monthly, plan a monthly budget; if you get paid weekly, plan a weekly budget.
It's important to adjust your budget as things change. For example, if you find you can't cover all your expenses, savings, and spending, you may have to reduce your spending limit, or change your savings goal.
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