Creating a budget can be fun because it allows you to take control of your life. However, to be successful, you have to provide as much detailed information as possible to see where your money is coming from, how much there is and where it’s all going. Be sure to include your partner and your older children in the planning of your budget.
You will need:
-
- Your payslips or tax returns detailing your income
-
- Credit and debit card statements
-
- A list of expenses
-
- Calculator.
Create a table with the following columns:
Monthly income
If your income is noted in the form of a regular slip where taxes are automatically deducted, use your net income. If you’re self-employed or have outside sources of income such as bonuses, commissions and dividends that you receive quarterly or annually, calculate the average to get a monthly estimate.
Monthly expenses
Divide this column into the following:
-
- Fixed expenses. List your fixed expenses (everything that you must pay each month) such as rent or housing loan, car payments and car, home and medical insurance.
-
- Variable expenses. List your variable expenses (ones that change from month to month) such as credit card, utilities, petrol, groceries, dining out, entertainment, holidays, electronics and gifts.
-
- Other. List expenses that must be paid annually, such as income tax, TV licence and your car’s registration fee. Divide by 12 to calculate the cost per month.
Savings
Once your income is higher than your expenses, add a column for savings. Divide this column into:
-
- Short-term. You might want to save for a holiday, car repairs etc.
-
- Mid-term. You might need to save for a wedding, have a university/college fund for your children, etc.
-
- Long-term. Retirement. It’s never too soon to start saving for your retirement.
Subtract expenses from income
Subtract your total monthly expenses from your total monthly income. Anything left over can be put into savings. If you spend more than you earn, start by cutting your variable costs. For example, pack a lunch instead of eating out, rent a movie instead of going to a cinema, keep trips to the shops to a minimum to save on petrol, and establish what special savings Telkom or other service providers have to offer.
Fixed costs are harder to cut, but you can save hundreds by doing so. Ask for a re-assessment of your home value if you think your property taxes are too high or negotiate a lower insurance rate. Separate your house insurance from your home loan to prevent paying interest on your insurance as well.
Review your budget
It is important to review your budget on a regular basis to make sure that you’re staying on track. After the first month, take a minute to sit down and compare your actual expenses with your budget. This will show you where you did well and where you may need to improve.
Sources
http://bankruptcy.about.com
http://financialplan.about.com