Set a budget

Wednesday, March 1, 2017

When you get your first pay check, it's exciting. Suddenly you have all this money and all the things you want to buy or do are within your reach. This lump sum can be deceptive though, making it look like you have more money then you really do. You may have received $1000, but you really only have $600 that's usable, because you still have to pay your bills for the month. Spending too much at the beginning of the month can get you in trouble at the end. This is why it's important to budget, to help manage your money and minimise over spending.

Budgeting steps

Budgeting can seem overwhelming, so break it down into steps.

1. list your income, how much do you earn in a fortnight or a month.
2. List your expenses, what bills and other expenses do you have to pay this month or fortnight.
3. subtract your expenses from your income, this will give you what you have left over to spend on everything else, such as groceries or on entertainment.

You can setup a budget manually using pen and paper or using a spreadsheet, but if you have a smart phone or tablet there are plenty of budgeting apps out there to help simplify the process. Each app has its own strengths and weakness, so look around for one that suits you.

One budgeting app I've used is TrackMySpend, developed by the Australian government. It's a basic app, but it's easy to setup and use, and it's free.

All you need to do is set a spending limit and give it a time period, this might be weekly, fortnightly or monthly. Once your limit is set, any expenses you enter into the app will be subtracted from the total amount and displayed on the main screen. The nice feature is you can categorise what each expense is for, allowing you to see where you're spending the most money. This is very useful for highlight areas where you over spend.

Overspending

Having a budgeting is the first step, the second is having the willpower to stick to the budget you've set. If you've set a budget before and found that you always went over, have a think about if any of the following reasons relate to you.

Over spending can because by emotional triggers. Some shop when they're sad to cheer themselves up, or shop when they're happy to celebrate something. In the heat of the moment it makes you feel great but that feeling quickly disappears later when you need the money but don't have it.

Small purchases that seem insignificant are another cause of overspending. When an item costs a lot of money people take a step back and think if they can afford this, will it blow out my budget. But when an item is only $5 here and $10 there it doesn't seem like you're spending much. The problem is all these small purchases add up and by the end of the month you've spent $100 dollars more then you planned.

Just because have a surplus of money after paying for all the necessities, doesn't mean you should go and spend it up. It can be tempting to treat yourself or try and have an expensive life style, spending money on restaurant dinners, entertainment, new clothes or gadgets. Spending more just because you have more, is fun but isn't smart.

When you have a surplus, instead of spending all of it you should start saving. If you put aside a little each month you'll be in a better position should something unexpected happen like an illness or injury, you need to replace something that broke, or worst case scenario you lose your job and have no income.

To help reduce your chances of getting into debt, to highlight areas where you could save money, and to help you save for unexpected events, start budgeting.

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