Whether you are preparing a personal budget or a business one, the basic steps are very similar. Budgeting your money, along with anything financial, can feel pretty overwhelming when you first start out.
However, managing your money carefully should be a top priority for us all as a way of helping our money to go further and to make sure that we are not living paycheck to paycheck (at least to the best of our ability, anyway).
Of course, in many cases, living paycheck to paycheck is unavoidable, no matter how many money-saving and budgeting tips we can share. We can’t budget our way into fair pay and wages, after all.
That being said, what this article aims to do is to give people that are being paid enough to live on (and those who should have leftover money each month) some tips to save even more money!
First and foremost you should take some time to fully understand your income. This will not be your whole salary, but will instead be the wage that you take home every week, fortnight, or month (depending on how often you get paid of course).
This is your ‘take-home’ figure, and it will be what you are left with from each paycheck after you have had all of your deductions taken, whatever they may be. These include tax, any compulsory payments, and anything else that gets taken from your cheque before you receive it.
You also need to take into account any possible additional sources of income that you receive regularly. These can include bonuses, monthly rental income, alimony, any income you get from freelance work, cash gifts, child support, interest, and dividends.
Knowing where you stand with what money you have coming in can make it easier to have an understanding of what that money needs to go on.
It is always surprising to us to find out how many people still don’t regularly check their paychecks to ensure they are getting what they have earned!
Of course, depending on whether you are budgeting for your business or for your personal finances, the sorts of deductions and contributions that you may need to consider will vary. You may also have very different sources of income.
Nevertheless, this step is essential for all kinds of budgeting, and the end result will be a final figure that you take home each month after all compulsory and voluntary taxes and other contributions have been made.
Next up is the part that sucks. You need to take a thorough look into your expenses. In other words, you really need to assess what you are spending money on each and every month.
Of course, many of these expenditures will be totally unavoidable, such as rent or mortgage payments, utilities, car, and transport costs, as well as any insurance that is paid monthly.
When you have worked this out, you also need to work out irregular but important recurring payments. This may well be insurance if it is paid quarterly, or any other payments that get split into 2 or 4 through the year.
You should also take some time to work out frequent payments that change regularly. For example, food, gas, entertainment, and DIY may all be pretty frequent costs, but the price is not generally fixed and may vary month by month.
To check this simply look at your bank statements for the last 12 months and try to establish a pattern and some average figures.
Make sure you compare finances for the last 6 to 12 months for an even more accurate picture. You will then be able to truly see what you have going out, compared to what you have going in.
Sure, you may not enjoy seeing all those ad hoc payments to Starbucks, Taco Bell, and Target for no apparent reason but it is necessary to find out if you want to take charge of your money.
Now that you know exactly what money you have coming in and going out of your account every month, it is finally time to start thinking about some realistic goal setting. The important keyword here is realistic.
This can be a little harsh because it really allows you to see where you may be overspending.
For example, if, after spending money on your necessities, you have lots of income leftover, but you spend it all on shopping, dining out, and day trips, then it may be worth cutting back (if saving is your goal, of course).
It may also be worth looking into whether you can spend that money on clearing any debts that you may have.
You really need to scrutinize your spending habits and try to suss out what is fine and what is being overzealous. After all, those thrice-daily trips to the coffee shop may seem essential, but you could be wasting $20-$30 every day when you could just make coffee in the office!
If you find the opposite, and see that you are barely scraping by, then it may be worth looking at ways where you can increase your income (or decrease your outgoings).
If you are in the position to do so, try seeing if there is a chance for a pay rise at work, or better still, a promotion to a higher-paying role. You could also check your bills to see if you are overpaying at all.
Lastly, you should look at ways of how you can track your progress. We mentioned setting goals in the previous section. Well, the best kind of goals are ones that you can keep track of. Create spreadsheets, or start a money journal so you can physically see your progress.
You should track your progress often. Many people take charge of their finances by tracking every week, whereas others do it after every single purchase! Choose what suits you best and go from there.