30 Jan 2013

Budget P2 - Adding it all up

This post is a continuation of Budget P1 - How to start. I suggest reading this post to get an understanding to assist in completing this next steps in completing your budget.

Once you've identified all your costs its time to determine what is the total monthly cost of your expenses and lifestyle. 

So for each item in your category calculate the monthly cost. If item cost is weekly times by 4, if fortnightly times by 2, yearly divide by 12 etc. You will need to do the same exercise with your sources of income, if they're not received monthly. 

By doing this you can start to see how much everything is costing you on a monthly basis versus how much you are earning a month. Straight away you can see whether you're living expenses is more than you earn. Once you've established whether you're spending more than you can afford it's time to review your budget and see where you can cut costs.

Again review each item and see whether that cost could either be minimised or eliminated somehow. 

Do you really need to buy your lunch at work everyday? Is there a cheaper internet / cable tv / mobile phone plan you can move onto that meets your family's usage? When was the last time you shopped around for an electricity provider? There are more competitive prices available you just need to do some homework. Do you have too many credit cards, you could roll them all onto a new one that have a lower interest rate then your current credit cards therefore only paying one credit card bill and one annual fee. How many times do you really go to the gym, would a casual rate suit your usage and budget better? When was the last time you refinanced your home loan? Interest rates are at historically low rates, you could save hundreds just by moving to another bank or asking your current provider to review your loan. The government has demolished exit fees now making it more flexible for home owners to move their loans. Could you cut down on going out or online shopping?

Cutting costs will require some hard work, sacrifices and time, success never comes easy.

Once you've established which items you could minimise or cut then proceed with actioning these changes. Start bringing lunch to work a few days a week, cancel that gym membership you barely use, shop around and look into changing insurance providers or resist the urge to shop for a month. Once you've made these changes don't forget to update the information on your budget as well.

You may notice because you have too many expenses you're unable to pay yourself a lot. Over time as you minimising your expenses you will be able to pay yourself more.
Once you've established how much everything costs you its time to start documenting that information together. You may as well use the same categories as you did when you started brain storming your expenses. 

This is the basis of your budget. It's a snap shot of your finances at a point in time and a blue print of how your money will be spent. Completing this task does not mean the task of budgeting is over. A budget is only useful as the information you maintain in it, so you need to maintain it regularly. In my household we look at our budget every week, Sunday nights to be exact. We look at what we spent last week and what expenses we owe this week. We review what we've been spending too much on and discuss any upcoming expenses that we did not include in our budget.

My next budget post will be how to track to your budget. 
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