If you’re saving for a goal, have regular expenses, or are repaying a debt, then having a personal budget is an invaluable tool for managing your money. It helps you to know, at a glance, how much you’re earning and how much you’re spending, and if there’s anything left over for savings or treats. A personal budget will help you avoid overspending or missing important payments, and reach your savings goals faster.
How do I get started?
First, decide on a method of recording your budget. If you’re a fan of old-school pencil and paper, then a maths exercise book works well. Online, Google Docs has budget template spreadsheets that you can fill in and access from your computer or mobile devices. If you don’t like any of the templates, you can set up your own from scratch. Alternatively, there are plenty of online budgeting tools. Check if your bank has one on their website, or try this one from Sorted.
What information do I include?
First, work out your total income from all sources. Then work out all your fixed expenses, which are all the bills you’re required to pay on a regular basis like mortgages or rent, credit cards, food, insurance, petrol, power and phone. Next, include a personal spending allowance for things like haircuts, clothing and entertainment. Make sure it’s realistic – if you set it too low you may find your budget hard to stick to. If you go back through the last three months of your bank account and credit card statements, it will give you an accurate picture of what and when you’re spending, and if there are areas you can cut back.
Fortnightly or monthly?
Whether you make a fortnightly or monthly plan will probably depend on the frequency of your regular pay because you’ll want to know how much of that to put aside each pay period to cover your expenses. If you’re paid fortnightly, but your bills are monthly, you can break your bills down into fortnightly values using this calculation:
Monthly cost x 12 (months of the year), then divide by 26 (fortnights in the year) = fortnightly cost.
How do I work it out?
Subtract your fixed expenses and your personal spending from your income to work out your disposable income. If you have big expenses that come up less frequently, like vehicle registration or land rates, don’t forget to allow for those by breaking the total down to a monthly (or fortnightly) figure and putting that amount aside.
I’ve ended up with a deficit
If your expenses exceed your income, then you need to examine your spending history for the last few months to see if there are any areas where you can cut back. Review your household expenses like insurance, power and phone to see if you can get a better deal. Small lifestyle changes like taking packed lunches to work and walking or biking instead of driving can all help to minimise daily costs. The beauty of having a budget is that you’ll know exactly how much you need to cut back to get on the right side of the ledger.
I’ve got money left over
If you’ve got money left over each month, your budget can help you spend (or save) it in the most effective way. First, consider using it to repay debt. Because interest on loans, hire purchases and credit cards is normally higher than interest on savings, you end up better off by reducing your debts first. Increasing your regular mortgage repayments, even by a small amount, can make a huge difference in the long run. If you don’t have any debts, talk to your bank or financial adviser about your savings options.
Lastly, don’t forget to keep your budget up to date. As fixed costs rise each year, be sure to adjust your totals, so your budget always helps you to keep in control of your finances.
At Best Mortgages, we can assist you with the mortgage process and help you with the process of saving on your mortgage. Contact us for your no obligation and free service with unbiased mortgage advice.