BUDGETING

A budget is a detailed schedule of planned financial activity, consisting off all income and expenditure.

WHY BUDGET?

There are many benefits of drawing up a budget for your money:

It gives you an accurate picture of your financial situation
Identifies where you need to make changes to spending habits
Highlights any areas where you could save money
Helps avoid running up large amounts of debt
It allows you to control your money effectively

HOW TO MAKE A BUDGET

A simple way to prepare a budget is to take your total income (eg loan instalments, part-time job, etc) over a set period of time and divide by the relevant number of weeks or months. For example, if you are drawing up a monthly budget you would divide the annual income by 12. Don’t include income assumptions that are not certain – don’t include wages from a summer job you hope to get. (Note that you may prefer to draw up a weekly budget as it may be simpler and easier to stick to).

Once you have established your monthly income, list all your monthly spending. Start with fixed and essentials – rent, bills, travel, etc. Then list the rest less fixed expenses – food, clothes, socialising, etc.

Add up your total outgoings and take it away from total income. If the balance is positive you have found a budget you can live within. If it is negative you should try and find a way to increase your income or cut spending to make you budget balance.

BUDGETING TIPS

Try and keep a record of everything you spend so you can compare actual result with your budget at the end of the week/month
Know your budget and stick to it. Know what you can afford to spend each week/month
Be realistic when setting your budget. There is no point in setting a target you will never achieve
Be honest – allow for lunch outings, a new pair of jeans and nights out
Pay bills by instalments – this will help your cash flow position as you won’t be hit with a lump sum at the end of the year
Spend time planning and preparing a budget sheet – it is less likely to work if you just throw one together in 10 minutes
Be sensible – if you know buying something will result in overspending your budgeted amount, don’t buy it.