Budgets can take infinite shapes and forms. BUT what they all have in common is that they help you track your income expenses across certain periods of time to make you aware of your financial situation and to prevent you from overspending.
Budgeting is an art, not a science, let’s talk about how to create your very own today!
Before you can build your own budget, you need to take stock of your spending situation. That is, you need to know the following:
To figure some of these out, you might want to have a look at your various statements/receipts from the previous month. Alternatively, your bank app might already be tracking and categorizing these earnings and expenses for you, so have a look there too!
From here, ask yourself these questions:
If you’ve answered NO to any or all of these questions, you’ll definitely want to consider making a budget.
When it comes to building a budget, you’ll want to tailor is based on your spending situation. The goal is ultimately to be spending less than you are earning and also to be spending in line with your chosen percentages (we’re going to follow the 50/30/20 rule).
First things first, you’ll want to look at your total income and divide it amongst your needs, wants and what’s left over (savings).
For example, if you earn $5000 a month after tax, under the 50/30/20 rule, you’d allocate $2500 to your NEEDS, $1500 to your WANTS and $1000 to SAVINGS.
Next, you’ll want to categorize all of your needs and wants based on the expenses we went through earlier and write down how much you spend on these each month approximately.
Looking at the totals in your table, you’ll want to figure out whether the actual percentage you are spending is in line with the rule (or your rules). Another important thing to check is that your expenses don’t exceed your total income.
As we can see above, we are spending less than we earn (tick!) BUT our expenses are not well distributed. We are spending too much on wants and not enough on our savings.
If you’re finding that you’re spending too much in one category or too much all up, you’ll want to cut down those expenses to make it work. In the above example, if we budget $200 for Kmart hauls instead of spending our usual $500, we are back to spending 30% on wants.
Update your budget table according to these more realistic amounts.
Now that you have a realistic budget for your situation, the goal is to follow through on it and stick to it. Try using spreadsheets or your banking app to monitor your spending and make sure you aren’t overspending or else it could throw off your budget plan.
Overall, embrace budgets as a tool to help you gain financial freedom. We like to think of budgets as a plan for your money to achieve two things…
And that’s it! Take this 50/30/20 rule as a starting point and roll from there. Happy budgeting muchachos.
While you're here, download our FY22 budget planner, it's pretty sweet if we don't say so ourselves!