How to budget - and review it

Budgeting is the first step to becoming financially independent. Out of the people I know I would say maybe a third have a budget. Of those they don't use it regularly and don't update it regularly. This is one of the most important parts of budgeting in my opinion. You must revisit it, often. Because even if your income isn't changing, your bills and expenses will.

Step 1:
Create a budget if you haven't already. I prefer to use Microsoft excel just because this means it can do sums for me...because I'm not the best at math.

As a basic chart I would recommend the first row for the dates you get paid. Mine is fortnightly so each column is one pay period. The reason I do it by payday is that each column will change depending on what bills fall during those two weeks.

The next step is to total your income. I hide this row once its done because its only used for the final sums, you don't need to see it week to week.

The next rows will be for your expenses. Each expense is a new row. Things like, rent, electricity, petrol, food, entertainment, savings, credit card repayment.

Total this section using the =SUM(  ) formula.

The next row will be the most important one. You need to unhide the total rows then minus the total expenses from the total income. This will give you your remaining balance for that period.

You can fill the remaining fortnights by clicking on the small square at the bottom right of the first box and dragging across to auto fill. If your expenses change each fortnight then just update this to reflect that pay ie. my phone bill and visa payments are monthly so i pay monthly but you might decide to allocate money each fortnight to the bigger bills like electricity (these are just example figures in the table)

So this will be your money bible you could say. Any money coming or going needs to go in here. It should be updated each pay with actual figures so you can make sure you aren't spending more than you make and can see the fortnights that you need a little extra from your savings.

Step 2:
Review it. I want you to get a bank statement, you can view them online if you want or print it out. Then for each variable expense i want you to add up how much you 'actually' spent last month. So you might have allocated $100 a fortnight for food but i want you to add up how much you actually spent on food. Those $3 coffees, mcdonalds after work, top up shops.  Are you still at $100? I guarantee you arent. This is where the next step comes in. For each area that you are over spending you need to sit down and work out if you can stop over spending or if the budget needs to be increased. Is $100 enough for food? It might not be reasonable to expect that. Or you might decide to menu plan and stick to a grocery list and see if you can bring it back in next month.

Then next month I want you to do this again. Go back and see if your budget is still in alignment to your spending. These things will change through the year so your budget needs to change also.

Step 3:
Work out what needs to be cut. You might notice a line on the example called Splurge. this is a strategy used by the Barefoot investor. He recommends breaking your budget down into percentages and not forgetting to pay yourself, this is your splurge. Its your entertainment fund, anything that isnt an essential item. New shoes for a night out, a bottle of wine with dinner, movies. If you dont have Splurge you wont stick to a budget. Scott recommends 10% of your income should be splurge.  I also recommend 10% savings. The rest of your money should be divided up. No more than 60% should be expenses like rent and electricity. Mine is currently 62% due to daycare, once Rue is at school next year it goes down to just 52%. If it is over 60% then you need to work out where you can cut back. Can you move to a cheaper home, go on a cheaper phone plan or down grade your car for cheaper repayments? If you are like me and are terrible with percentages then this website works it out for you.

Thats enough for now. If you can get control of your finances and see where it is ACTUALLY going then you can start to get your ducks in a line, reduce unnecessary spending and have more money for the important things.

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