Tips to create a budget

A budget is nothing more than a breakdown and plan of how much money you have coming in and where it goes. If you don’t know how much money you have coming in and where it goes, your road to financial success will be a difficult one.

Creating a budget may not sound like the most exciting thing in the world to do, but it is vital in keeping your financial house in order. In order for your budget to be successful you have to provide as much detailed information as possible. Ultimately, the end result will be able to show where your money is coming from, how much is there and where it is all going.

Here's how to create a budget

1. Gather every financial statement you can. This includes bank accounts, investment accounts, recent utility bills and any information regarding a source of income or expense. The key for this process is to create a monthly average so the more information you can dig up the better.
2. Record all of your sources of income. If you are self-employed or have any outside sources of income, record these as well. If your income is in the form of a regular paycheck where taxes are automatically deducted then using the net income, or take home pay, amount is fine. Record this total income as a monthly amount.
3. Create a list of monthly expenses. Write down a list of all the expected expenses you plan on incurring over the course of a month. This includes a mortgage repayment, car repayments and insurance, groceries, utilities, entertainment, dry cleaning, retirement or education expenses - essentially everything you spend money on.
4. Break expenses into two categories: fixed and variable. Fixed expenses are those that stay relatively the same each month. They include expenses such as your mortgage or rent, car repayments, credit card payments and so on.
   Variable expenses are the type that will change from month to month and include items such as groceries, petrol, entertainment, and eating out to name a few. This category will be important when making adjustments.
5. Total your monthly income and monthly expenses. If the end result shows more income than expenses you’re off to a good start. If you’re showing a higher expense column than income it means some changes will have to be made.
6. Make adjustments to expenses. If you have accurately identified and listed all of your expenses the ultimate goal would be to have your income and expense columns to be equal. This means all of your income is accounted for and budgeted for a specific expense, including contributions to your savings account. If you are in a situation where expenses are higher than income you should look at your variable expenses to find areas to cut.

Review your budget monthly 

It’s important to review your budget on a regular basis to make sure you’re staying on track. After the first month take a minute to sit down and compare the actual expenses versus what you had created in the budget. This will show you where you did well and where you may need to improve. Our budgeting tool can help you create an effective budget and put you on the right path to achieving your financial goals.
 

• Important information
  The advice on this website has been prepared without considering your objectives, financial situation or needs Because of that, you should, before acting on the advice, consider its appropriateness to your circumstances.