Guide to Budgeting: Saving Money And Managing Your Expenses

Fatten up your piggybank. Drawing up a budget starts by anticipating your expenses and weighing your payments according to your monthly salary.

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Saving money with the help of budgeting is a great idea if you currently find yourself at the shorter end of the financial stick.

Some people find budgeting hard or complicated but once you design your first budget, there will be no turning back. Others yet don’t want the feeling of being restricted with a budget because they fear it would restrict them. However, those savvy people that do save money by having a budget reap the rewards and by reading on you’ll see how it can pay off financially.

First you need to understand why budgeting is a good idea:

The bottom line is that budgets help you to understand where your money goes. This in turn gives you control over your finances. Having a budget will help you to reach your goals faster and enable you to save money by planing your way there.

Always remember, a budget is a guide to knowing where your money is going, it is a tool, not a law that punishes you. You will find that saving money is a lot easier with a budget because you will have total knowledge of where your money is or is not.

How to start a budget:

Start by making a list of what you spend. You will need to do this for a period of about two or three months.

You can make the list as detailed as you want, remember it is your budget, a guide to help you save money. The list can be organised into groups of expenses for example health, utilities, groceries and so on. You will find this easier rather than listing every item. You can make it as simple as using just two categories, for example essentials and luxuries. Essentials being the regular items such as rent or mortgage, transport, education, health insurance etc. The luxuries are holidays, eating out, etc.

The important thing to remember about your budget is that it is easy for you to work with. There are no rules or regulations to what a budget should contain, so keep it simple and flexible, remember you can change it to suit your needs.

Setting up your Budget:

The list below will help to get your budget in place:

• Set a time frame.
• Work out your income.
• Work out your expenses.
• Calculate the difference.
• Tweak the budget at will.
• Update it.

Time-frame: Work out you budget time frame. It could be for a month, quarterly, six months or a year, whatever you choose, make sure that the amount calculated matches the time frame.

Calculate your income: This includes all of your wages and interest earned from savings, anything that is regular. If your income fluctuates, estimate an average amount. Try to calculate income after tax. Remember that we are calculating only regular income not bonus cheques or unexpected windfalls.

Your expenses: Expenses include things like direct debit bills, loan amounts, credit card repayments etc. Any savings you wish to accumulate need to be calculated as an expense also. Remember to calculate the amounts according to the time frame you set.

Now calculate the difference: This is the easy bit. Subtract your total expenditure from your income figure, this will give you your budget.

With the easy part over, now we need to fine tune the budget: Check that the conversions are correct to the time frame used.

• What does your budget tell you?
• Are you spending more than your income allows?
• How does your budget stack up?
• Do you need to make some adjustments in your luxuries category?
• Is your budget allowing you to pay the bills, or do you find yourself reaching for the credit card each month?
• Are you able to save according to the budget?

Remember to keep your budget realistic. Forcing yourself to make it work will only set it up for failure. Saving money with the aid of a budget doesn’t mean you have to sacrifice all of life’s luxuries.

By updating your budget with extra income from a salary increase or a sudden unexpected expense (the water heater just blew,) it will keep it realistic, and you’ll be in total control of your finances. Remember to adjust the budget if you spend too much money one month by reducing the expenditure the next month. At least once a year go back and re evaluate your budget for the next year.

Sticking to your Budget

To make your budget work for you will need to keep a watchful eye on your expenses. Cut back on your luxuries list first, but remember not to punish yourself. If you make it too hard to stick to, you won’t stick to your budget.

By setting targets, cutting back in places, keeping track of spending habits, making adjustments, maybe you can reach your goals early and have some extra money. If you do, then reward yourself.

What about those unexpected expenses?

The best thing to do with unexpected expenses is to expect them. By that I mean try and plan for them by putting a little aside for emergencies. If the bill is less than budgeted, put the extra into a the emergency fund.

What happens if you blow the Budget?

Don’t panic. Contact any outstanding lenders (the creditors) and inform them of your financial situation. Tell them you wish to discuss payment options. Try to negotiate a reduced interest on the debt for the time being and work at reducing the debt.

If you have an outstanding credit card debt, try to make the minimum payment each month, otherwise you will have to pay additional fees. Remember, that you can seek help from a financial counsellor if you are unable to gain control of your budget yourself.

Budgeting is a fabulous way to gain back control of finances by saving money, money you can invest into the things you REALLY want.

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