It will take at least a month to get an accurate idea of what you're spending on non-essentials. It's worthwhile putting the time and effort in to do it though because it will give you real figures to work with instead of guessing it and being wrong. When you're dealing with your money, you need to work with reliable figures. And for that reason, I encourage you to be truthful, no matter what that truth is. You also have to be thoughtful and kind. If you're doing this exercise with your partner and one or both of you have been overspending, blaming each other does no one any good. Start your budgeting in a positive frame of mind, agree that there will be no blame, you're doing something about your financial situation and that's the important thing.
Now you're ready to take control of your finances and you do that by creating your own budget.
To create a budget, you have to know all your annual expenses. If you have access to last year's bills you're in a good position. You need to know how much you spend on internet, phones, TV, electricity, water, rates, rent/mortgage, insurance, health, education, clothes, food, petrol, entertainment, pets, gardening and anything else you pay for during the year - either once or many times.
On a piece of paper or a spread sheet, work out what your categories are and list them according to whether they're paid in cash or in response to an invoice or bill. You'll have three lists:
- what you pay forserviceslike insurance, phone, electricity etc.
- items you pay for in cash - groceries, petrol etc.
- a third list of items you don't need every month but still have to put money aside for
When you make up your lists, you'll need to work out how much you spend every year on each of these items, then divide that amount by 12 to give you a monthly figure to put aside. You don't have to have a monthly budget, set your up according to how you are paid. If it's monthly, do a monthly budget. If it's fortnightly, do up a fortnightly budget - for this you'd add up your yearly expenses and divide them by 26, because you'll be paid 26 times a year. If you get paid weekly, divide your yearly amounts by 52.
Tracking your spending
Now, why did you track your spending? When you write out your budget you may find you don't have enough money to cover your expenses. If that happens, go to your tracking records and see what you spent on non-essential spending. Hopefully, that will cover your budget short fall. If it doesn't you'll have to reduce what you're spending in other areas so you can live within your means. Look at items such as groceries - maybe you can cut ten dollars from that. Look at phone bills. Do you need an expensive phone? Do you need a phone at all? Look at entertainment, you may have to cut down on that until you get your budget sorted out.
For example - your list may be similar to this or different.
Monthly bills
- Rent/mortgage payment
- Insurance - health, car, home, life.
- Electricity
- Water
- Rates
- Phone
- Internet
- Car registration
Monthly Cash
- Groceries
- Petrol
- Travel
- Education
- Entertainment
- Garden supplies
Extras are not needed every month, but money has to be put aside to pay for these items:
- Clothing/shoes
- Haircuts
- House maintenance
- Car maintenance
- Hobbies
- Annual holiday
When you have your three lists you'll need:
- money in the bank to pay your bills
- cash in hand to buy groceries, petrol etc
- either money in the bank or cash to pay for your extras
Your bank accounts
Set up your bank accounts to facilitate your bill paying and to earn the highest amount of interest. You can pay your bills using a credit card (paying it off each month to avoid interest payments), debit card, cheque or direct debit and if you have enough money in the bank in your bill paying account, this will work well for you. We have a bill paying account that our pensions go into - yours could receive your pay. This is the account you use to pay your bills as they come in. You leave enough money in this account to pay the bills you know you'll have to pay this month as well as the bills you've budgeted for but aren't due this month. What is left is transferred to a higher interest account.
We have a higher interest ING account and the money that doesn't have to cover bills is transferred to that account. We get better interest in this account and we can also withdraw cash for our monthly cash needs such as groceries. We also withdraw money from here to pay in cash for any of our extras - haircuts, house maintenance etc.
Cash envelopes
When cash is withdrawn from the bank, ours is put into envelopes/jars/ziplock bags under their budget categories - groceries, petrol, garden supplies etc., so I know exactly how much I have to spend in each category. When I go shopping, I take money from these envelopes, do my shopping, and return any change to the envelopes. During the month, I can see the money dwindling and I know exactly how much a I have left to spend. Whatever is left in the envelopes at the end of the money can be added to our savings.
It will take you a few months to have this system rolling along effortlessly but when it does, it works very well. Tthe first thing is to get those lists happening. There is plenty for you to get started on. Remember, be truthful, be kind if you're doing this with your partner and make sure you include everything. This isn't easy but if you work out a budget you can live on, your life will be much easier. Good luck!
