Budgeting for the expected & unexpected circumstances - Part 1
By Mathew Wilkshire
How often do unexpected bills land in your letter box, and you haven’t set aside savings to pay for them? Have you ever made a New Years resolution to set up a Christmas Gift Savings Account to try avoiding the hefty credit card bill you receive in January? By establishing a Budget you will be more prepared to pay for these expected and unexpected expenses.
What is a budget?
A budget is simply a detailed plan that shows exactly where your money is coming from, how much you are spending and how much you are saving. Most people prepare a budget detailing income and expenses on a monthly basis (in line with their regular expenses), however it can by created fortnightly if it makes it easier for you to record (in line with your fortnightly pay).
Creating a budget can help you quickly identify where you are overspending. It should include realistic, short and long term financial goals, incorporating your spending and saving into a budget, so you can achieve these goals.
Creating a budget
1 – Collect information: Get all your financial information, such as bank and investment account statements, utility bills and any information about the money you have coming in and what you spend it on (pay slips, credit card statements etc).
2 - List your income sources: List down all sources of income, such as your salary (net income, or take home pay) and other income (e.g., interest from bank accounts, dividends on investments). Write down your total income as a monthly amount (if you’re paid more frequently it may be easier to plan your budget over your pay period – e.g. budget per fortnight).
3 - List your expense items: Compile a list all of your expenses, such as rent or mortgage repayment, car repayment, mobile phone and internet, car insurance, home & contents insurance, groceries, petrol, travel, utilities, entertainment and education expenses. Make sure you also include ‘one-off’ or infrequent payments.
4 – Variable Expenses: Variable expenses change from month to month (groceries, petrol, entertainment, etc) – so for the purpose of preparing the budget, you’ll have to average these.
5 - See the big picture: Once your income and expenses have been totalled, you can see the bigger picture. If your income exceeds your expenses, you are in a position to put a regular savings plan together. If it’s the other way round, you are living beyond your means and it’s time to make some changes.
6 - Establishing your savings plan: Your savings plan is based on your initial budget, but with changes made to enable you to save. Work out how you can spend smarter or cut back on spending in other ways. Alternatively you could increase your income by taking a second job, working extra shifts or working to get a promotion.
A benefit for you by having a balanced budget (which includes a savings plan) is the piece-of-mind you will be able to manage any expected, or unexpected expenses that come your way throughout the year.