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Mention the word budget and you are rarely greeted with gleeful excitement, hands clapping together and a ‘Yay let’s get started’. However, the fact remains that a budget is the cornerstone of any financial plan. If you do nothing else with your finances, consider doing this one thing. It could change your life…for the better.
Follow these simple steps to develop a budget that works for you.
1. Track your spending
The first step is to know where your money goes. Spend a couple of weeks keeping track of your purchases, impulse or otherwise, to get a real idea of what you are spending your money on. And yes, there is an app for that.
2. Use a budget calculator to input your income and expenses
This might take a minute – make yourself a cup of tea. Use info from your spend tracking to input figures. Your bank statements also come in really handy here, because let’s face it – who remembers what their last electricity bill was. You should be able to access your bank statements or transaction history via internet banking.
3. Review your results
If you are spending (or plan to spend) less than you earn you will have a budget surplus. This is money you can use to save for a car, holiday, house deposit or rainy day. If you are spending (or plan to spend) more than you earn, you have some more work to do on your budget – please proceed to step 4.
4. Tweak the numbers
The beauty of using a budget calculator is that you can play with the numbers to instantly see the overall impact of different scenarios. Some of your costs will be fixed – there is nothing you can do about that, as we all need a roof over our head. Instead focus on the numbers you can change – these are usually related to discretionary spending on food, clothes, going out etc. Review the numbers from your spend tracking results and look for ways you can cut back. Try a few different options and, if you want to give yourself a fighting chance of sticking to your budget, make sure your cuts are reasonable.
5. Review
Making a budget only to shelve it and carry on as you were = fail. Make some time each pay period to review what you actually spent against your budgeted spend. It might take a while to get to a point where your budget works for you. Stick with it - it will be worth it in the long run.
To get started on a basic budget, use the IMB Bank Budget Planner.
