Spending what’s in your bank account or up to your credit card limit after you pay your regular expenses is not a budget. Smart people have a plan. Having a plan is easy you just need to work out what financial goals you wish to achieve.
Do you want a holiday in Koh Samui, a new car, to pay out that loan or to save up a deposit on your new home?
I can’t tell you want your goals should be but you are probably not different to everybody else out there in society. Depending on what stage of life you are will probably determine your goals.
In a person’s financial life typical goals are:
- saving for a car
- saving for a holiday
- saving for a loan deposit
- paying out existing debts
You will need to balance your goals with competition from your living expenses.
Finding out where your money has gone is important. Most outgoings from your pay can be split into a few basic categories:
- basic living expenses
- luxury living expenses
Which leaves surplus cashflow remaining.
If you find you don’t have any cashflow surplus you need to find out why not.
The first step is to work out your basic living expenses.
Keeping track of your expenses is easier when you use a spreadsheet. Click here to download the ASIC Budget spreadsheet.
Once you’ve worked out what your expenses are you need to reconcile it with reality. Does the surplus cashflow suggested by the spreadsheet match what’s leftover in your bank account each week?
If it does congratulations. You can now proceed to using the savings calculator to work out how long it will take to meet your goal.
If it doesn’t you need to do some analysis. You will need to make some tough choices if you want to meet your goals. Examine your expenses again and work out what is essential and what isn’t.
If you are not happy with your results you can consider the following options:
- increase your income
- cut unneccessary expenses
- reduce where possible fixed costs
Some areas in which you can reduce costs include getting a better rate on credit cards, home loans or other debts. You can also get better rates on any investments such as savings accounts.
Resources
Simply Budgets is a site that sells a very successful budget software program.
Australian Securities and Investments Commission’s Budget Planner