5 Steps to Set an Effective Budget
You may be comfortably handling your debts or beginning to come into some considerable amounts, based on a big purchase you are about to make (buying a home). Or you may be struggling to manage your debts and falling further and further behind on a monthly basis. Regardless of your situation, you should, if you haven’t already, have a strict budget in place to assist you with all your finances.
Budgeting is an effective method to help spend, track and monitor your monthly earnings. Whether or not you’re in control of your debts, you should have an established budget in place to help you with your monthly spending. If you’re not sure how to create this budget, here is a 5 step process to assist you.
1. Download a Budget Template
Opposed to simply writing an unorganised budget in a notepad, look online and download a budgeting template. Fox Symes offers a suitable template that will no doubt provide you with enough resources to effectively set your new budget. The template will include a breakdown of mandatory expenses and categorised in an efficient manner which will assist you with finalising your expenses.
2. Determine Your Monthly Disposable Income
Check your payslips for the exact amount your disposable income equates to over a 4 week period. Your disposable income is your salary, minus the tax payable. This may be known in other terms, your ‘take home’ amount. Once you have this figure, you can allocate this to your template and know exactly how much you have per month for all spending.
3. Note ALL Your Expenses
Using the template you have downloaded, you should start filling out all the expenses (on a monthly scale). You may have to brainstorm to determine all your expenses. These will include mortgage repayments, food, electricity, phone, fuel etc. Start inputting them all into the template and once all your expenses are accounted for, you can total the amount payable per month. This will provide you with your total monthly expenses. This amount should be allocated or stored somewhere safe for the coming expenses.
4. Note and Save Your Discretionary Income
The amount left over is your discretionary income. This is exactly as it sounds, the amount to spend at your discretion. This is where you must be careful, as this is the money you spend on leisure purposes, shopping and socialising with friends. You don’t have to remove fun from your life, however if you can manage to save any of this money and avoid any unnecessary spending, it will be beneficial to your debts as you can potentially pay off more than the minimum amount.
5. Monitor Your Budget Monthly
After each month goes by, you should monitor your budget and make any corrections necessary. This may include over spending of your discretionary income, or ineffective allocation to your mandatory expenses. Regardless of the discrepancies, you should make the necessary change coming into next month’s budget.
If you manage to follow this 5 step process, you will be well on your way to being a budgeting guru and saving more money than you were originally.