Budgeting: five easy steps to getting your finances in order

User Written by Carl Turner on January 27, 2016.

Budgeting: five easy steps to getting your finances in order

In my last post I explained just how important budgeting is and the manifold benefits it brings. Now I’m bringing you an easy five-step guide on exactly how to do it for those who are right at the beginning of getting their finances in order.

Budgeting is not just for those who have to watch what they are spending, it is for everyone whether you earn two thousand or two hundred thousand dollars a month. To really get your finances into shape you should view your household finances as a mini-business and run them as such. Here’s how:

1. Decide how you will document your budget

Those with a technical bent will want to make use of online tools and apps which help you record your income and expenditure. There is a whole host to choose from including accounting packages such as Quicken or apps including Wally, Mvelopes and Spendbook. You can research and trial to see what suits you best. For the luddites, a simple pen and paper could suffice, or an Excel spreadsheet is very simple to set up. Use whatever works for you.

2. Calculate your monthly income

This is much easier if you have a regular salary as you will have an exact amount to work with. If your income varies month to month because you are self-employed or run your own business, you will have to work harder to keep a note of exactly what you have had to spend each month and you will have to use estimates to predict future income based on previous performance.

As well as your salary, you may have additional income from share dividends, pensions, family allowance benefits, capital gains and other sources so if these are relevant, make sure to include entries for those as well on your spreadsheet or budgeting system.

3. Work out your regular outgoings

Some of your outgoings will be fixed – mortgage repayments, rent, school fees for example – others, such as household utility bills, will vary. Take your last bank statement as a reference point and go through it line by line to extract all your outgoings over a month. These will vary from one individual to the next but here is a fairly comprehensive list of types of expenditure which you can adapt to your own situation.

You can download a simple Monthly Budget Plan Spreadsheet here

4. Determine the difference between your income and expenditure

With all the above information duly logged, it should be easy to see whether income exceeds expenditure or the other way around. Of course, we are aiming for the former but if that’s not the case for you at least you know your situation, and you can take concrete steps to change it which is a very positive step towards getting your finances in order.

5. Start a savings habit

Having clarified the exact state that your finances are in, you can now take the next step towards being truly in control of your financial future by prioritising saving. The idea is not to save what is left after spending but to spend what is left after saving. That means working out your financial goals and putting aside sufficient funds each month to enable you to reach them. If you have debts (aside from a mortgage which is good debt), prioritise paying those off first before you start saving. Then put savings aside for an emergency fund which, as explained in my previous post, is invaluable in avoiding financial chaos when unplanned events upset the financial applecart. Finally, start a savings and investment plan for your retirement fund and any other major expenditure you envisage in the future such as tertiary education for your children, or the purchase of your own home.

The subject of working out your financial goals is best left to another blog post or, better still, go and see a financial adviser who can help you define your goals. Whichever route you choose, do be sure to take that next important step. A little effort put into budgeting and taking control of your finances now will pay huge dividends in the future and bring you financial security during your working life and beyond. Good luck!

Carl Turner

Carl Turner

Posted on January 27, 2016 in Financial Planning.