‘Budget’ is a bit of a dirty word- it sounds like lunches brought from home, no nights out and the end of nice things. But let's face it, whether you know it or not, you already have a budget. You might be ignoring the limitations of your budget right now, and spending beyond your means, but if it’s time to bring things back into line, here’s how to get started.
Your budget has a few basic components, and a few extras, which may or may not apply to you. You’ll need to work through and understand your outgoings and income to get a picture of your situation.
This isn’t as straightforward as you might think at first. It’s a good idea to look at your last tax return and get a real sense of what’s coming in from where. Make a decision as to whether you’re going to work with figures before or after tax. At Moneytree, we think it’s better to use the figures you take home. You don’t want anything to inflate your budget and make you think you’ve got more cash to play with than you actually do…
On that note, be very honest with yourself about what’s actually coming in. The things you’re planning to sell, or the business you’ve been thinking about starting, don’t actually represent any income. They don’t belong anywhere near your budget until they represent a reliable source of income. Oh, and even when they get to that point, if you’ve been living without the extra cash, maybe those dollars should head straight into savings? Just a thought.
This is your salary or wages that you receive from work, including any benefits or allowances. Don’t factor in any bonuses or dividends that aren’t guaranteed, instead capture this as secondary income.
If you’ve got a side hustle, this is where that cash comes in. This income is usually a little more irregular than your primary income and it’s best to make sure that your budget doesn’t rely on it. When you’re categorising this income it’s best to send it into your savings, or use it as ‘fun money’ to pay for some extras rather than any of your essentials.
If you don’t have something going on the side- have a think about what you could set up. Maybe getting rid of old clothes on eBay, getting a little crafty on Etsy, selling that amazing barbeque sauce you make, discovering the joys of listing the spare room on AirBnB, spending a night or two a week as an Uber driver… thanks to the internet and our shiny new sharing economy, the possibilities are endless.
The big stuff
The items that you pay for monthly are pretty easy to account for because they’re usually fresh in your mind. Think rent, or your mortgage, car payment, student loan payments, health insurance, mobile phone, internet, gym, and any regular donations that you make.
The little stuff
These are the things that it can be tempting to leave out of your budget. One common budgeting trap is to create an unrealistic budget and leave out the little day-to-day items you buy. Be honest- if you love a weekly movie, or know you’ll be grabbing a taxi home after a late night, make sure this is reflected in your budget.
Now that you know what you’re looking at, it’s time to start tracking your spending, and putting every transaction into the appropriate ‘budget bucket’. This can be a laborious process, especially if you use a few different banks and credit cards. It’s important to make your budgeting process simple, because then you have a much better chance of sticking with it. This is where Moneytree really shines, because it saves you time by categorising your transactions automatically.
There’s no set-and-forget here. A budget should always be a work in progress. Not only will your circumstances always change, but so will your goals and priorities. It’s important to be constantly adjusting and making sure that your budget is in line with what’s going on. Moneytree makes it simple to get a snapshot of where you’re at, but it’s on you to do the adjusting and ask yourself the hard questions.
Build a better budget. Get started with Moneytree now.
Get more from your money, while you keep enjoying yourself.