Budgeting is one of those things that everyone thinks is a good idea, but few put into motion.
Perhaps it’s partly that some people are unsure how to budget, don’t want to spend the time, or maybe some people have an inkling of what the outcome will be, but would rather not know.
Budgeting means understanding how much money is coming in and how much is going out. At the end, you will know whether you have a surplus (money coming in is more than money going out) or a deficit (money coming in is less than money going out).
With a budget you can keep track of how you are going and either congratulate yourself for sticking within your budget, or start to make decisions to get back on track.
How to do a budget:
1. Get all the information that you will need in one place. This will make it a lot easier. You will need to know:
a. Income – where does your income come from? How much do you earn?
b. Expenses – what do you spend money on? This includes everything – from insurance, to car rego, haircuts, fuel, electricity and more.
2. Choose how you are going to do your budget – There are many different tools you can use to develop your budget, from a piece of paper to an Excel spreadsheet or advanced software. We find that using the ASIC Moneysmart Budget Planner works really well, as it categories the different types of your expenses:
3. Enter the data – this is the part where your budget is going to start taking shape. It will show what you are currently spending each year versus what you are earning.
4. Analysing the data – at the bottom of the budget there should be a figure which tells you whether you are in surplus of deficit. This will tell you the bottom line of whether your current spending is sustainable or if you need to make some changes to your lifestyle.
Knowing this information is half the battle won; it means that you are at least informed of how you are currently tracking.
If you are in surplus:
i. Congratulate yourself, as you are able to save more money than what you spend. You are in a situation where you can look to build wealth.
ii. Look through your budget and check whether the expenses that you have listed are likely to be the same as the last year. This will determine whether the surplus will remain.
iii. Think about your financial goals and determine an amount of money that you can save each month to invest.
iv. Enter this amount into your budget so that you priorities this savings as part of your expenses.
v. Meet with an investment specialist to see how they can make the money saved work harder for you.
If you are in deficit:
1. Don’t panic
2. Have a look through the budget again and check that everything is entered correctly. You may have entered an expense that is annual as monthly, or something similar.
3. If you are still in deficit it is time to have a look at all the expenses you are paying and determine which can be reduced. You will be surprised at some of the categories, and may think to yourself, ‘did I really spend that much on…..’
4. Making changes are not easy, and involve some restraint. Things don’t happen overnight, but if you are able to reduce some expenses, this will go a long way to creating a surplus.
Doing a budget is vital because if you don’t know what you are spending versus earning, it’s hard to make any changes.
Whether you are currently in surplus or deficit, there are always things you can do to improve your situation. Some are small changes, others are bigger.
If you feel that you need assistance in this regard, we are happy to help at Quest Advisory Group.
For more information, please contact us on 1300 120 455