It’s that time of year when we look at our bank statements and declare “This year will be different, I will commit to a weekly budget planner in the New Year and start changing my spending habits!” Unfortunately whilst many of us make new years resolutions, most of us have broken them by the end of February, but if taking better control of your finances in 2010 really is a resolution you would like to keep, then one evening in January (or any time of the year for that matter) is all it takes to really grab that budget by the horns so that maintaining that feeling of financial motivation becomes almost second nature throughout the coming year.
To get started you will need to sit down with a pen and notebook.
Begin by getting out all your old bills from 2009 and get a feel for your typical spending habits. It’s easy to see that a large portion of your income is going to be taken up by rent or mortgage payments, and in today’s economic climate that is unlikely to change. However, other areas can be tightened up; for example, the phone and power bills can often be reduced by choosing different plans, using power more efficiently etc.
Don’t feel disheartened by the fact that probably 80% of your income is taken up by the necessities in life like a roof over your head, food, heating, gas etc. This is normal, modern day life requires a lot of expense, but it doesn’t mean you can’t enjoy life too. So realistically consider the things you enjoy in life and be committed to allowing for entertainment expenses. In short, a happy budgeter is a better budgeter.
If being an organized budgeter has not been one of your strengths in life chances are you have not kept receipts to review spending in areas such a feeding your shoe addiction, keeping your home stylish, eating out, going to the movies and other ‘luxuries’ in life. Indeed we should all have the ability to distinguish between need’s and wants, but in order to set a realistic budget we must also accept that we will have wants, so identify them and include those spends in your budget for the coming year.
In one column on your note paper make a list of all your regular commitments, your rent or mortgage being the first.
Continue the list with all your regular bills, phone, internet, power, cable TV etc and write down the amount they usually are in a column alongside, some will be fixed whilst other may fluctuate depending on use, so just write down an estimated amount. Don’t forget things like insurances and school fees, and of course loans.
Now break these figures down to fit in with your income cycle, so for example if you receive your power bill every 3 months, but get paid every fortnight, then you will divide the bill by 6 and this will tell you how much out of your fortnightly income needs to be set aside for an expense. Looking at it this way means you will begin to think of your power bill as a $40 expense each pay, rather than a bill that is coming sometime down the track.
Now go back to the column where you have listed your bills and begin adding other things that are common spends for you according to your own unique lifestyle. Perhaps you drink coffee on the way to work everyday, that $3 coffee could mean a $21 commitment out of your pay cheque. You might be a regular lotto player, buy a weekly magazine, the daily paper. All these seemingly insignificant spends could add up to quite a bit as you are trying to keep a hold on your budget while wondering where all the money goes. The trick to being in control is a simple as being honest and realistic within reason allow yourself these simple pleasures.
Now we come to identifying our wants, for example, clothing is a necessity but most clothing purchases are actually not, again, there is nothing wrong with having a love for fashion, just acknowledge it and plan for it. Perhaps consider the time you are most likely to spend up on clothing, during the end of financial year sales perhaps, or at the beginning of each new fashion season. By understanding your normal spending patterns you will be in a much better position to make wiser choices when it comes to buying the things you want and by the end of the evening you should have a very clear idea of your personal spending habits and be ready to commit to a new financial you in 2010.
Now that you have a handle on your normal spending habits you should also consider setting aside a little each week for unexpected emergencies, and of course having a savings plan is always a good idea, but if you are in debt, focus on paying down that debt before worrying about savings.