So, you have decided to take charge of where your money is going and what you are doing with it – you have some goals in mind and know the main tool to help you get there is to have a personal budget in place. A budget is a great snapshot of where your money is going, and it can help you feel more in control of your finances, and it helps to make your savings goals achievable. The trick is to figure out a way to track your financial comings and goings that works for you.
Below we have put our heads together to come up with some steps to help you create your own personal budget.
What is your Net Income?
Net Income is what is deposited into your bank account each pay day. Knowing what this amount is and what day you are paid, is the foundation of an effective budget. If you’re a freelancer, gig worker, contractor or are self-employed, make sure to keep detailed notes of your contracts and pay in order to help manage irregular income.
Categorise and Organise
Track and categorise your spending. Where is your money going? A good place to start is to list your Fixed Expenses these are the regular monthly bills such as Rent, Mortgage, Utilities, Internet, Car payments etc. Next list your Variable Expenses, these are the ones that change from month to month, such as Groceries, Petrol, Power or Gas, Phone and Entertainment. Using your bank statements and previous bills, record the average you would spend in these areas over a three month period – these amounts can now become the minimum you budget for the expense in that category.
Date and Stamp it
Its time to write down what you now know. This can be done in a budget book, A4 paper and stuck to the fridge, written in your phone, via an app or download our free budget template here Shop/Resources – (femmefinance.co.nz) If you want to add stickers and sparkles, do it, make it yours!!
Enter your income, your expenses, and the amounts you are going to budget for each. Ensure you also record when each bill is due so that you do not default on any payments – good account conduct goes a long way if one of your goals is to apply for finance for a home loan!
A good rule of thumb to ensure defaults don’t occur, is to set up the payments for each expense to be paid as soon as the bill arrives, or the money enters your account. Another handy tip is to have separate accounts for different groups of expenses – an account for the house utilities, an account for groceries and dining out, an account for retail and entertainment and an account for your Savings. Just double check that you don’t have fees charged on each account!
Setting Goals and Regular Reviews
Now you have documented your income and spending, you can make the necessary adjustments so that you don’t overspend and have money to put toward your goals. Are there any wants that you can cut back on or remove altogether? Is there the possibility of getting a better deal to save money with car insurance, internet provider?
Once your budget is set, it’s important to review it and your spending on a regular basis to be sure you are staying on track. Make a note in your diary or do it every pay day!
Good luck and happy budgeting!!