Budget Planning (October 2013)
Take control of you money — budget planning 101
The trouble that a lot of people have with setting themselves a budget is that they often think of budgeting in the same way they view dieting – you can't have this, you can't have that. Nope, put down the fork. No, no, no.
But the truth is having a budget can actually mean not going without – a budget is your chance to use your money in a more focused way, to work towards being able to afford more, even treat yourself to a night out or a holiday (or whatever your goal may be).
The thing to remember about setting yourself a budget is to not be too hard on yourself. There are no absolutely unbreakable rules about making a budget, or sticking to it, and there is definitely no magic bullet. In fact, everybody is different, and what may work for one person may not work for another.
The important thing to remember is that if you want your budget to work, it has to be “do-able” – make it too hard to stick to, and all your good intentions will be for nothing.
The first step is to simply write down what you spend over a certain time – say, one month if you are paid weekly, or over a couple of months if you are paid monthly, so that you get an idea of your expenses over a few pay periods. Since it's your budget, you can include as much detail as you think appropriate, but a helpful approach will be to add up “categories” of expenses. And don't get too finicky at first. Groceries, for example, but not how much spent on tea bags or toothpaste. Transport of course, but not car air fresheners or a newspaper to read on the train.
There are two over-riding categories of course, and these are “essentials” and “extras”. The essentials are the things that need to be paid no matter what, just to keep your family or household running – things like electricity, gas and water, the rent or mortgage, food and health essentials, clothing, and transport to work or school.
The extras are obvious; you can get by without them, but they're nice to have occasionally – movies, takeaway food perhaps, or a drink with friends.
On top of these, there should also be factored in some allowance to put something aside for unforeseen expenses. These are the things that crop up now and then, and when they do they are unavoidable – dentist or doctor, car repairs, plumbing emergency and so on.
The important thing here is to keep your categories of expenses relevant to your own situation. Your budget doesn't have to impress anyone else, and it has to be useful to you. So be flexible, and change the parameters you're working with if you find that they just don't work.
A helpful mid-stream tactic will be to set yourself a target. Make it one that will achieve a useful result, like saving for some gym shoes. Fine tune your budget to help reach your goal – for example, settle for a DVD instead of going to the cinema a few times over a month. Keep track of your spending from pay to pay, and how much you have saved to reach your target.
There are electronic or online budget planners available that can help you make these fine tunings, and your bank or other financial institutions you deal with may have one that you can access via their website.
As an example, the Australian Securities and Investments Commission's consumer website has a free budget planner that you may find useful. It is an interactive online calculator that will show you how your expenses stack up against your income, and you can make an adjustment to one area of your budget to see how that change will affect the end outcome. The government's MoneySmart website also has an interactive Excel budget planner that you can access here.
Some utilities have an option to pay monthly or quarterly. You will need to make a judgement as to which suits your income pattern best, and try to spread the payment periods, having some monthly and some quarterly so that you won't have to find a big lump sum to pay all your services bills at once.
It is important to not let bills go too long before paying them as some incur a penalty for late payment. On the other hand, some utilities companies offer a discount for paying before the due date. If you are having trouble getting the whole amount together, call the company and explain the situation. There is no guarantee, but companies are generally practical about being paid, and may be able to allow you extra time, or arrange smaller more frequent payments. And paying by instalments will at least enable you to squeeze in some of that fine tuning with each pay packet.
If you are really in trouble, or one of those unexpected bigger expenses mentioned earlier crops up, the thing you don't want to do is panic. It is important to contact the companies you owe money to and explain your difficulties, and that you need to discuss making arrangements. Offering what you can reasonably afford to pay to a creditor will help your case. And contact is particularly important if you have used an asset like the car as security for a loan for example. Get in touch, before the sheriff arrives with his wheel clamp.
If it is a credit card debt you are grappling with, try to make sure you pay at least the minimum each month to avoid further fees on top of what is already owed. And don't be backward about looking for advice; for example the Australian Competition and Consumer Commission has some helpful suggestions about where to go for help with debt problems.