As Benjamin Franklin once said, “A Penny Saved is a Penny Earned”, however easier said than done. Things were also a whole lot different back in the 18th Century. Don’t let this phase you, as a budget can be everyone’s friend, even if you’re on top of your financial position and feel you’re in a good stable place financially, a budget can, and will always come in handy.
We have all been in that position sometime in our lives that we want that special something; birthdays, Christmas, weddings, a new car possibly, so by having that extra bit of coin up your sleeve it will really benefit you long term, and will help to avoid breaking the piggy bank when the cash is needed.
The Question is How do we do this?
Tip 1: Your Household Income
Firstly, work out what your household brings home after tax each week. For example, if you are a freelancer (someone who works for themselves/self-employed) make sure you work out what you pay in taxes before you calculate your income. If you are an employee and on the PAYE system, this will be a lot easier for you as your employee will do the hard yards for you.
From here you can set your budget.
Tip 2: Your Total Spend
Categorising how you are spending your money will be your first step. We have provided atemplate for you to refer too, give or take the categories provided by Microsoft Office. Ensure you include everything in your total spend; which may be dinner with friends, drinks at the local pub, buying the newspaper, pocket money for the kids, new paint for the baby room etc. Once the categories have been determined get the process going with how you want to set up your budget.
Tip 3: Money ‘In’ Money ‘Out’
When the bank statement comes through, have a look what money is going out and what money is coming in, if the money going out is more than the money going in then you know there’s a problem!
One way to look at it is by having three pools of how you identify with your money: Buffer, Savings, and Spending Money.
Buffer – 10 – 20% of your income to be put in the ‘Buffer’ pool, this is for that emergency money; money you need for a rainy day. Having this buffer will ease the pressure when you need something fixed on your car, or the kids school trip, or that doctors bill for that ‘niggly’ cold.
Savings – You should aim for at least 10% of your total income to be put in this pool. This will be your hardest pool, as it’s the one we tend to dip in to the most. But trust me it will be worth it, especially when the Gold Coast or Fiji trip may be looming.
Everything ‘Else’ Money – This is your necessities money, the billing pool. Your power, water, rates, gas, all the things that have to be paid. 60 – 70 % of your income will be contributed to this.
Spending Money (aka Fun Money) – Sorry to say, but this will be your last pool. After the Buffer and the Savings accounts are sorted you can then move to the ‘Fun Money’ pool. This is for things like, dinners out, hot pools, Rotorua Luge, clothes, watching the Rugby on a Saturday night at the pub, 10% of your income will fall into this pool.
This does come last but it can be achieved.
Tip 4: Setting Goals
Long term and Short Term goals are essential to any plan you want to execute. For example a short term goal could be saving $50 a month, which over 12 months is $600 – that’s almost a return trip to the Gold Coast! Or if you calculate that $50 over 5 years, that could be enough for a deposit on a new car. See its really easy, and so effective long term.
Tip 5: Making debt a Priority
Is that credit card bill atrocious, almost at your wits end on how to make minimum payments? Firstly, cut up that credit card, don’t open any new ones, and pay your bills on time.
Now this is where we are here to help, by consolidating your debt.
Lastly, work out what the bulk of your income requires, there will always be something that you need to cut down on. It’s part of life. However the most important thing from the above exercise is setting something in concrete and sticking to it, understand the differences between budget and necessities. Finally, don’t back your chances on the bonus coming through, or possibly winning Lotto. Nice idea, but we do need to live in reality.
CONTACT LINSA to ask about a your personal loan & get back on track with your budgeting.
