Planning a personal budget can feel like a rather overwhelming task. It may feel like opening a Pandora’s box of debt, bad planning, failure, bad financial decisions, and overdue accounts, but the whole point of having a budget is to avoid experiencing these things.
A budget is not a set of rules, but rather a framework in which you spend your money. Knowing what you can afford to spend and where your money is going has been described as a rewarding and self-satisfying experience. But how do you budget? What are some good personal budget tips?
Set Yourself Goals
Ask yourself why you need a budget, knowing your why and your goals is a key step to drawing up and sticking to a budget. Is it because you want to get rid of debt, save for your retirement, or go on your dream holiday? Think of the financial goals you wish to achieve, and break these down into three categories:
· Long Term Goals: What do you want to achieve in 5- or 10-years’ time? Start a family, send your children to university, or maybe start your own business?
· Medium Term Goals: List 2 things which you would like to accomplish within the next year: Pay off your debt, start a new career, renovate your home?
· Short Term Goals: Think of 1 thing which you would like to accomplish over the next month: Save a certain amount of money, not use your credit card or accounts for 30 days?
Setting yourself financial goals will help you track your success and allow you to celebrate your achievements as you follow your path to financial security. Remember that these goals are not set in stone and can be reviewed or changed at any time, having goals is the most important thing.
You need to know where your money is going and having a budget will give you a roadmap of where and how you are spending. If you understand the reason as to why or where you might be overspending, then you can stop the cycle and keep your budget on track.
Begin by making a list of your income, and your expenses. Some of your expenses will be monthly (mortgage repayment, Groceries, School Fees), others may be annual (Car licenses, TV Licenses, etc) and need to be accounted for within each month’s budget (i.e., Portioned into 12 months, and saved for payment in the month they will be due). You could even open a separate savings account for the annual expenses so as not to be tempted to use the money in your current account.
Divide the above expenses into two categories: fixed (e.g., water, mortgage, school fees) and variable (e.g., groceries, petrol)
Prioritise your expenses starting with the most important ones like; bond, utilities, food, and transport, and work your way down the list.
Create a personalised spreadsheet, or simply use a budget diary. Do what works for you.
The first time you draw up a budget can be the most time consuming. The months after are merely about updating and recording new expenses.
Evaluate and Track Your Progress
Remember that every month is unique and different expenses can arise. One may have many birthday celebrations, another may be at the beginning of the year when you have school expenses,or a holiday month. You will need to make allowance for these by reviewing your budget regularly. Start monitoring your financial trends, cutting your spending, and trimming your budget if needed.
Some Personal Budgeting Tips to consider
· Things take time – give it time to work and show results. Give your budget a chance!
· Do not compare yourself to others - All things are relative, and this applies to finances too. Everyone has a different income and different expenses, so your budget is unique to you, so do what is right for you.
· Consolidate your debt – our Bond Optimiser team has helped clients save up to R7000 a month on debt repayments. Talk to one of our friendly team members today to see if we can help you too.
If you want to change a habit, you need to know and understand the habit! Knowledge is power, and the more you know about your expenses, your income and spending habits, the better you can plan for your future financial freedom and achieve peace of mind when it comes to your money. Plan and commit!