Creating a Successful Budget in 3 Easy Steps
Successful financial planning is all about what is in your control. You can’t, for example, control the stock market or tax rates, but you can plan to lessen these risks through portfolio diversification and tax planning. Of all these areas, we have the most control over our income, expenditure, and savings, and that’s why creating a workable budget is so imperative.
Getting to Grips with Your Income
No matter how you are paid, whether it’s an hourly rate, a set salary, or on commission, it is important that you make a forecast of your take-home income each month to compare to your expenses. If you are paid less often than monthly, you will have to calculate how long that income is expected to last, and have a plan to spread out your resources accordingly.
Note: no two budgets are the same and the budgeting templates available online will not have the required categories or level of detail needed. However, the three basic categories detailed below will get your budget off to a great start!
- Monthly Needs vs. Monthly Wants
Monthly needs are expenses that you need to have every month and should include your cost of housing (whether you own or rent), minimum repayments of loans, groceries, utilities, and other basic needs. However, it’s important to remember that everyone’s ideas of ‘needs’ are different, but it’s important to keep these expenses to less than 50% a month.
Ideally, your monthly wants should only take up 30% of your take home income. Your monthly wants are comprised of things you want to have to make your life more enjoyable, such as going out to eat, entertainment such as Online NZ Casino games, new furniture, clothing, etc.
- Savings and Investment Goals
Your savings and investments are the part of your budget set up to achieve long term goals such as creating an emergency or rainy-day fund, holidays, and buying a new house or car.
- For each goal, pick a date by which you would like to achieve that goal and divide the amount needed by the number of months until that date, to determine a monthly amount. For example, if you wanted to buy a new car for $20,000 in 3 years, you would need to put away $555 a month for 36 months in order to achieve this goal.
- Repaying credit card and personal loan debt can take a long time and making any additional principal payments towards any debt can be lumped into the long-term savings goal category. You are not technically saving funds by paying loans back faster, but you will in this way reduce the amount of interest paid in the long run.
- You should also be setting aside a portion of your income for retirement savings and you should speak to a financial advisor in order to determine how much you should be saving monthly in order to achieve your retirement goals.
- Tracking Your Expenses
Even though you may already have a budget, you may not be actively budgeting – but what is the difference? Having a budget is a great place to start and provides spending goals to measure expenses against. On the other hand, budgeting includes regularly tracking your expenses and updating your budget as your income and expenses change. If you don’t track your expenses, you won’t be able to know if you’re achieving your spending goals.
All the best and happy budgeting!