Budgeting in plain English - What is a budget?
A budget is a plan that works out how you will manage your income and expenses. Maintaining a budget is a powerful way to control your money.
Do you need a budget?
A budget allows you to see how much money is coming in and going out. It helps you ensure there is enough money to cover your expenses and is an effective way to make sure you are not spending more than you can afford. More importantly, a budget can help you work out how much of your income you can put towards saving for your future, without impacting your everyday needs.
Everyone can benefit from having a budget. The purpose of a budget is not to make you go without or to force you to save. It simply allows you to manage your money in a more controlled and effective way and to understand where you are spending your money.
How do you start a budget?
Write down your normal income and expenses over the period of a month. Income can be grouped into categories such as work and income you receive from investments or other sources. Similarly, expenses can be grouped into categories such as food, clothes, entertainment and so on. This makes it easy to see exactly where your money is being spent.
A budget can help you decide what you want to spend your money on, and how much you can save.
Making your budget work
This step-by-step guide will help you build a budget that works best for you. If you have combined expenses with a partner, it is important that you work it out together.
- Does your budget reflect what is actually happening?
- Is it realistic?
If you think your budget is not quite right, then make alterations so it is accurate.
Sticking to your budget
If your budget is too strict, it will be harder for you to stick to it.
Spend less than you earn
If you have a cash deficit, review your expenses and cut back where you can.
Include your goals
If you are planning an expensive holiday (or other savings goal such as home renovations or a new car), include these expenses in your budget and start saving.
Review your progress
Check how much is left in the bank each month and how much you have spent. Compare this with your budget to see how you have fared. If your budget differs from reality, you may need to make some adjustments.
Managing your money in an effective way takes practice. When you are comfortable that your budget is accurate and you are able to stick to it, reward your hard work and treat yourself!
What if the unexpected happens?
Life always has a way of throwing us surprises. The financial consequences of these should not be understated. Try to keep a buffer in your budget so that when this does happen you will be able to minimise any financial strain.
Remember, if something does happen that turns your budget upside down – don’t panic. Staying calm and working out how to manage unexpected circumstances is the best way to regain control of the situation.
Don't yet have a budget?
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General Disclaimer: This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. Please seek personal financial advice prior to acting on this information.