Budgeting

Expanding your budget

Once you are comfortable looking at a general overview of your expenses and income, you can start to categorise, expand and track your expenses. This is where personal budgeting really comes into its own and can be a very useful tool.

Think long and hard about your expenses and divide them up into categories such as:

• Food (yours, pets, school lunches etc.)
  
• Clothing
  
• Loans, credit cards etc.
  
• Entertainment
  
• Utilities (electricity, heating, insurances, etc.)
  
• Travel
  
• Car, etc.
  

The more you can break all of your expenses down into these categories, the better you’ll be able to see where your money goes.

Into each category, enter in your monthly (if that’s the time period you are using) expenditure. In some cases, like car expenses, you’ll need to ‘guesstimate’ but it’s always better to over estimate your expenses rather than underestimate them. Remember to factor in annual fees such as insurance premiums, club memberships and such, as well as maintenance costs for your house, car and any other assets you have.

Once completed, you should have a pretty accurate record of your monthly outgoings and be better placed to see which areas can be cut back on.

Tracking your budget

Another key component to creating a successful personal budget is to keep track of your spending habits. This is not something that needs to be done for a lifetime, but if you can condition yourself to keep a record of your spending habits for a period of, say, two months, it should paint a very accurate picture of how much you spend and where. It can be quite alarming to see just how much money gets frittered away on inconsequential purchases such as soda drinks, snack foods, etc.

A good way to do this is to keep a small notebook and pencil handy with you at all times during your tracking period and to record all purchases that you make in this book. That goes for everything, right down to a stick of gum or some loose change given to a street musician. Also make sure to keep all the receipts from your purchases and at the end of each night, tally up your receipts and make sure they match your entries in your notebook. At the end of each week, break your purchases down into a number of categories, such as: drinks, food, newspapers, candy etc. and enter the totals for the week. The more specific the categories the better.

To truly highlight your impulse buys, and the cumulative impact it can have on your finances, you might want to also make a note of whether each purchase you make falls into the ‘needed’ category or the ‘impulse’ one. As you note down each purchase you make in your notebook, put a simple ‘I’ or ‘N’ next to each listing. At the end of each week, tally up your impulse buys to give yourself a shock to see just how much you spend on unnecessary items.

At the end of your tracking period, enter in your monthly totals and view the results. Chances are there will be some pretty startling revelations about your spending habits, and hopefully, some indications to where you might start to cut back and save.