Day 7 – every dollar counts – how to prepare a budget

You’ve probably heard someone tell you at some point that you ‘should’ do a budget.  But where do you start?  Having recently drafted a budget, I will share my tips on how to put one together easily and simply.

Why do you need a budget?

As I outlined in my previous post, I didn’t have a budget until recently. A budget, is, however, really important if there you experience any major life changes, if you are leaking money somewhere but are not sure exactly where, or if you want to see how (or if) you can afford something like a new car or a big holiday.

How do you do a budget?

There are a few online databases and even expensive programs that help you do budgets.  You can pay as little or as much as you want to do one. You can even use a sheet of paper.  There are some good resources on ASIC’s Money Smart website.  The one that I have found simplest an easiest is a Microsoft Excel spreadsheet – in fact, they even have templates for this purpose.  The one I like is called ‘simple budget’. [Send me an email at msfrugalears[at]gmail.com if you would like a copy of my budget template]

I discovered that I like to have a fortnightly budget, a most of my major expenses (salary and mortgage payments) are paid fortnightly.  But use a monthly, or even a yearly budget if that works best for you. When converting, remember that in many cases you can’t just divide up a monthly figure by two to produce a fortnightly result (or double it if going from fortnight to monthly) – there are 26 fortnights and 12 months in a year, so adjust accordingly. (For example, my health insurance is $357 a month, which works out at $164.77 per fortnight rather than $178.)

The harder bit is to populate it with data.  Do not stress if you don’t have all the answers.  A good budget is a living document, and you can adjust it as your life adjusts.  When I first moved into my apartment last year I didn’t know what my electricity expenses would be, for example, so I did a guestimate.

Your income

On the first spreadsheet, work out what you receive per fortnight/month on average from:

• Salary
• Wages
• Additional sources of income (e.g. Uber driving, writing, babysitting)
• Centrelink payments
• Family tax payments/childcare rebate
• Child support payments
• Tax returns
• Rental income (before expenses)
• Share dividends
• Medicare payments
• Private health insurance reimbursements

Your expenses

This is different for everyone, which is one of the problems with proforma templates.

Go through your bill folder (if you have one) and work out estimates.  Look over your online banking statement for a few months (or a year if you have time) and identify recurring payments.  If you really have no idea, you can guesstimate based on the average spending habits of most Australians.

As you do your budget, you will probably start to ‘remember’ things that you pay regularly but have forgotten about. Like your Netflix or your home internet.  This is normal. Just add them to your list as you remember them.

Here are a few prompts for you to consider based on the structure of my own budget:

Your housing costs

• Rent
• Mortgage
• Rates
• Buiding/contents insurance
• Body corporate/strata levies
• Renovations
• Maintenance

Utilities/cost of living

• Electricity
• Gas
• Water

Investment property costs

• Mortgage repayments
• Property management fees
• Rates
• Body corporate
• Land tax
• Landlord insurance
• water

Regular savings and investment

• Additional superannuation
• Aditional mortgage repayments
• Payments into managed funds/exchange-traded funds

Transport

• Bus
• Train
• Bicycle
• Tram
• Car repayments
• Car servicing
• Petrol
• Car insurances
• Registration
• Drivers licence

Fitness/leisure

• Gym memberships
• Latin dance classes
• Tai chi classes
• Yoga classes
• Swimming pool visits
• Weight loss programs
• Martial arts classes
• Bicycles
• Sports equipment
• Lycra and sportswear

Health

• Private health insurance
• Medicare surcharge
• Pharmaceuticals
• Vitamin supplements
• Acupuncture/Traditional Chinese Medicine
• Physiotherapy
• Chiropractor
• Visits to the GP

Entertainment

• Regular social events (e.g. Friday night drinks)
• Plans to travel interstate to see a show/musical
• Regular cinema visits
• Dining out – fine dining
• Eating out – coffees, tea, cafes
• Netflix
• Foxtel
• Other cable channels
• Other fun stuff

Screen time

• Computer payments (if leased)
• NBN or other internet connection
• New TV
• iPads etc

Club or professional memberships

• Fees for professional associations
• Rotary/Lions/Toastmasters/Zonta Club membership and meals
• Golf club memberships

Kids education and extracurricular

• Childcare
• Before school care
• After school care
• Swimming lessons
• Piano lessons/musical lessons and equipment
• Martial arts (including uniforms)
• Sports
• School book pack
• School uniforms
• School fees
• School equipment

Christmas

If spending at Christmas is a really big thing for you, budget it in

• Presents
• Food
• Decorations

Holidays

Where do you plan to holiday in 2018?  Having that conversation at the beginning of the year can help you in setting up your budget.

• Christmas travel
• Cruises
• Overseas travel
• Trips to the coast
• Easter camping/getaway
• Skiing in winter

Groceries

• Food
• Cleaning items
• Toiletries

Looking good

• Clothing
• Hairdresser
• Makeup
• Shoes

Blogging

• Domain hosting
• Self-hosting
• Site security
• Photography editing programs

Gifts

• Deductible gifts (e.g. donations to charities – make sure you record these)
• Giving to your church
• Kids birthday parties
• Presents for family and friends

Miscellaneous

Give yourself some extra money to play with – you know you will spend money even if you think you won’t.

Some people like to have a ‘sanity allowance’ that they can spend on whatever they like. They find this useful as a tool for factoring in a bit of fun money. I don’t use this, but I know it works well for a lot of people.

Instead, into this bag, I put all those things that are odd and unexpected – because there is always something.

So your challenge for today is to start a budget.  It might take you a while to get it right, and it might take a bit of tweaking.  But please, just start. If you already have a budget, review it to see if it is still relevant and useful for you.  But above all remember that a good budget does not mean anything if you don’t commit to saving and investing.