Budgeting is quite a simple concept – your income must always be greater than your monthly expenses – yet so many of us struggle to balance our monthly budgets. However, by following six easy steps you can budget effectively and chart your course toward financial freedom.
Create a list of expenditures
Your monthly expenses can sometimes sneak up on you, with your salary being used up before you even notice. The best approach is to make a list of everything you spend in a given month. Here’s how:
Look through your monthly statement and make a list of your debit orders.
Credit Card Statements
Read through your last three months’ credit card statements and try to account for every item on the list. Then, make a note of all charges and penalties. Finally, divide the total expenses by three (to arrive at one month’s expenses) and add this to your list.
For each cash withdrawal, try to account for what the cash was spent on. Items like domestic workers’ wages, groceries, and petrol are the most common examples.
Some items like school fees, holiday expenses and vets bills are not paid every month but can add up to a lot of money. These need to be added to your list of expenses.
Your Savings Wish List
These are items you would like to save for, even if you don’t manage to do so every month. Consider that up to 15% of your income should go toward retirement savings, and that you should have emergency savings that equal 4 months’ salary – this could prevent you from losing your home should you become unemployed. Education fund savings are essential if you have children and would like them to become self-sufficient.
Does Your Budget Balance?
Comparing your income to expenses, you will soon see whether your finances are in order or not. If it looks like you need a bailout from the IMF, you’ll need to make some budget cuts!
In part two, we explore what cuts can be made to balance your budget.