The step-by-step guide to budgeting in 2018

Now that Christmas is over, and the holiday season is out of the way, it’s the perfect time to get your finances back under control. But it’s now post-Christmas and nearing the end of March, making it the perfect time to get a foot hold on your financial situation.

So where do we begin?

Tip one: Set an achievable goal

Start with a goal. Before putting pen to paper (or number to cell) ask yourself what sort of lifestyle you want to lead this year? Are you saving for a big trip and wanting to put more away? Are you wanting more time for family and entertainment? Or are you saving for a deposit or bigger home? Be clear with your intentions as this will not only create focus but become your motivator for larger budget decisions.

Tip two: Get organised

Before starting this year’s budget, you’ll need a few things at the ready:

• Gather your financial statements – this will help you accurately budget your expenditure. Think bank statements, investment accounts, utility bills, school bills etc…
• Work out your sources of income –Do you have multiple workers in the home? Are you running a side business? Try work out your total monthly take home pay (after tax).
• Create a list of expenses – now you know your income and have all your financial statements handy, create a list of monthly expenses. Remember mortgage payments, insurance, utilities, dry cleaning, student loans etc.

Tip three: Get started

Now that you have a list of expenses, you need to figure out what costs are ‘needs’ versus what costs are wants. Do this by splitting your expenses into two sections; necessary and discretionary expenses.

Necessary expenses include fixed costs such as rent, mortgages, insurance, health care, loan repayments, utilities, gas and groceries. These are the costs which cannot be cut, so will take priority in your budget. Next are the discretionary costs, these are optional expenses such as eating out, movies, holidays and electronics etc.

Once you have two lists, compare the total expenses to your income. If you spend more than you earn, you’ll need to make some changes immediately (don’t worry, that’s what the budget is for), while if there’s surplus then you’re off to a great start!

Tip four: Be honest with yourself

Now that we have a goal and rough idea of monthly income and expenditure, it’s time to be honest with yourself. Budgets can seem scary at first as you watch your money suddenly disappear, but it’s important to be truthful about your spending. For instance, if you tend to buy lunch every day and know this likely won’t change going forward, make sure you account for this in your initial budget.

Remember, at the end of the day the first budget is just a starting point. Its purpose is to highlight areas where fat can be trimmed while pinpointing where your money is going.
Now that’s out of the way, let’s start saving some money…

Tip five: ‘Trim the fat’

Start with the excess expenditure. Even if you have surplus when comparing income to expenditure, is there more that can be trimmed?

Look through your discretionary expenses and work out where you can spend less. This is easier than it seems, but may require a bit more pre-organisation. Pack your lunch, rent a DVD or stream a movie online instead of going to the movies. The list goes on!

Fixed costs are harder to cut but hundreds can be saved through the following:

• Negotiate a lower insurance premium through competitors.
• Assess whether you need all the channels on your cable TV? And remove the ones you don’t watch anymore.
• Not using all your internet allocation? Landline no longer rings? Modify your plan to reflect usage while saving money at the same time.

Tip six: Set savings

By this point, your income should be higher than your expenditure, which means now you can start meeting those financial goals. Split your saving goals into three areas:

• Short-term goals: Think holiday money, emergency cash and unexpected car expenses.
• Mid-term goals: University (for you or your kids), business ideas, investment capital.
• Long-term goals: Retirement

From your budget surplus, work out how much you’d like to put away into each saving group. Remember you’ll still need money for yourself and entertainment, so don’t squirrel all of the surplus away.

Tip seven: Make use of budgeting tools and apps

Mobile budgeting apps such as Mint and Wally are great tools to help you keep track of your spending, debt and when bills are due. Seeing a notification pop up on your phone that an invoice is due is one of the best ways to remind yourself of your budgeting commitments.
Alternatively, use the Nectar budgeting tool by clicking here.

Tip eight: Moving forward after the budget

This year, make it your goal to not spend money on unnecessary transactions such as late payments from utility bills and credit card statements. Being aware of payment dates and staying on top of your bills is crucial to remaining financially secure. An easy way to stay on top of bills and monthly payments is by setting up automatic payments and direct debits.

Balance Finance recommends checking your budget once a fortnight to see how you’re progressing and ensure you’re running at a surplus.

Tip nine: Be aware of external factors that could have an impact on your budget

Keep an eye on financial news that could affect your budgets such as rising interest rates, or an increase in tax on regular purchases. Implementing these changes into your budget will enable you to be more accurate and will save you the shock of items suddenly costing more.

Tip ten: Save some money for yourself

Budgeting can be stressful and often it can feel like you are spending money on only the bare essentials. Be sure to divert some money to a personal spending account to keep yourself happy and to remind yourself that budgeting is about reducing your financial stress rather than increasing it.