With the new financial year underway, now is a good time to start looking at your budget – ‘new year, new goals’. And perhaps you’re thinking of that dream holiday, paying for your studies or want to pay off some debt?
These are seven things to think about when you are planning your monthly budget:
1. Calculate your Income and your Goal
Determine how much money you make each month. For those who receive a regular salary this will be easy as this amount is visible on your payslips. For people who work asfreelancersand contractors it will be a little more difficult as you need to calculate your average monthly income based on your most recent invoices.
Remember this is your net income which is the amount you ‘take home’ after deductions such as tax.
Then you need to go through what your goal is, is it short term or long term savings you are after?
Track your Short Term Savings:
What are your short-term goals? saving for a new phone, laptop, new chair or maybe some shoes. That is a short-term goal. Something tangible by thing and easy to work towards when you use a budget to help you create what contributes where and what money goes towards the things you want. When you take a closer look and get into the habit of saving at the end of the month it will become subconscious on having control of your money and easy.
Track your Long Term Savings:
Long-term goals are a retirement plan, saving for a down payment for a house or a car or a big expense that will take the time to put money toward. Saving for a home means ideally it is time to create budgeting includes serious cut backs and time to discuss guidance as to how to accurately save properly.
2. List your Expenses
Expenses can be divided into two groups:
- Fixed expenses such as rent, utility bills, insurance, school fees, subscriptions, savings and bank fees.
- Variable expenses such as groceries, transport, airtime, clothes, fuel and entertainment.
Compile a list of all expenses to understand what your outgoings are each month.
3. Adjust your Financial Priorities
Prioritise accordingly, when you know your fixed amounts you need to pay per month like rent or mortgage or phone contract or car loan, then you can go from there down. After those payments what and how much is left? If nothing is left then you may need to adjust what you have and how can you cull down those expenses, can you switch to public transport or change to a cheaper phone plan? From there you can create a realistic budget that speaks to your savings goals.
4. Compare your Income vs Expenses
Hopefully your income will be higher than your expenses and you are able to put extra money into a savings account or retirement fund.
If your expenses are more than you earn each month you are overspending and you will need to reduce some of your variable expenses such as entertainment.
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5. Creating a Budget Plan
A good guide to use when budget planning is the 50/30/20 budget rule. Divide your net income into three categories:
- 50% of your income goes towards necessities such as rent, bills, school fees.
- 30% of your income goes towards lifestyle spending such as entertainment, toys, clothes.
- 20% of your income goes towards savings – emergency funds, retirement, investments.
Downloada free budget template to keep track of these monthly expenses.
6. Monitor Your Spending and Tweak your Budget
Keep an eye on how much you spend each month and ensure your expenses are equal to or lower than your income. If you tend to overspend, adjust your budget so that you reduce unnecessary expenses or the amount you spend on food.
Circumstances change and your budget needs to work for you – review it every few months and make changes if necessary so that it suits you and your financial situation.
7. Budgeting Methods
These methods include:
Zero-based budgeting:
Where you specifically plan how each and every Rand of your pay goes to, you don’t estimate anything. You use a detailed sheet with each contribution is for what exactly.
Activity Based budgeting:
Activity-based budgeting is for identifying the exact cost of activities and expenditures and make adjustments for regular monthly activities and what goes where.
Incremental Budgeting
Incremental budgeting is an approach where the previous period’s budget is adjusted by a certain percentage to create a new budget.
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- 20% of your income goes towards savings – emergency funds, retirement, investments.
Downloada free budget template to keep track of these monthly expenses.
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