“Money makes the world go round.” It’s a phrase we hear all the time. We need money to survive: that’s a fact. Unfortunately, unless your parents are loaded or you’ve reached that point in your career where money isn’t an issue, budgeting is a necessary evil if you want to save money for the important things in life. Pour yourself a glass of water (it’s free!), sit back, relax and I’ll share with you five steps to create a budget plan that you can actually follow.
Step 1: Identify your motivator
First things first, ask yourself: why do I want to save money? Having a budget is all well and good, but there’s no point in setting one up if you don’t have a motivator. Without one, how are you are going to stop yourself from overspending? What are you going to tell yourself when that new pair of shoes has you pressed up against the store window like a kid outside a lolly shop? Complete this sentence.
I need to save so that I can _______________________________________________________________.
Common motivators include:
- Go on holiday at the end of the year.
- Afford a home deposit.
- Avoid (possibly further) debt.
Step 2 : Calculate your monthly income, expenses and what is left over
The second step is to do some calculations (don’t worry, you can use a calculator)! Income is any money that you earn – this could be from your full-time job, a side business, cash gifts for your birthday, selling old items on Gumtree, or even bank account interest. Expenses are the things that you spend money on.
So, how do you calculate your income and expenses? Working out your income is easy. Simply add up all of the money you received that month. To calculate your expenses, you will have to gather up your receipts and look at your bank statements for the month. Next, you should group similar items and add up your total expenses. Then add up all of the figures to find your total expenses. You can find out how much you have left at the end of each month by subtracting this figure from your total income. I encourage you to do all of these steps so that you can truly see how much you are earning and spending, and, in turn, saving!
The quickest way to do all of this is to use Microsoft Excel. I know it’s not the most attractive programme out there, but man, it saves you literally hours if you set it up right. All you have to do is input your data and add a few formulas to do the calculations and you’re ready to go! Here is a spreadsheet that I set up to do this:
STEP 3: Work out how much money you need to live
Thirdly, calculate your essential expenses. My MiGoals diary has a section to record income and expenses which I find works quite well for this. I highlight the items that I definitely need to pay for each month, like petrol, my phone bill and Netflix bill. At certain times of the year, bigger payments will also need to be made, such as for car tax, health insurance and car insurance. To be prepared for these bigger fees, (and because I never remember when they will be due!) I now add an extra 15% to my savings goal for each month. When you identify your needs, add these up. The total is how much money you will need to earn (at minimum) in order to live each month.
Step 4: Identify the expenses you can cut out
The penultimate step is to make some cutbacks. You might’ve completed the previous step and started to completely freak out. I know, I’ve been there! The sad truth is that most of us spend far more than we should, but that’s why we need a budget!
If the difference between your income and expenses has left you with a negative amount, you will need to cut down on some things so that you can save money and avoid going into debt. Even if you’re already saving some money, you can always save more! Looking at your figures, does anything stand out as an unnecessary spend? Or is there any area in your expenses that you believe you are paying too much for?
If you look at my expenses from January, I spent $218 on lunches. When I saw this, I nearly choked! That is far too many romantic avo toast trips. I knew I had to reduce the amount of times I ate out, but I also knew that it would be unrealistic to cut it out completely. As a result, I resolved to eat out less and decided to slowly reduce the amount I ate out each month. In February, I spent $170 on lunches, saving $50.
You may look at your expenses and realise that you are paying too much rent for what you earn. You might realise you are still paying for a gym membership that you haven’t used in a year. You may even be shocked at how much you spent on clothes last month. What can you reduce or cut out in order to maximise your savings?
Step 5: Set savings goals and do monthly checks
Finally, stick to your budget plan by setting savings goals and doing monthly checks. When you identified your motivator, there was probably a number attached. For example, you may be saving for a holiday at the end of December that will cost $10,000. To attain this, setting monthly savings goals are essential! In this case, if you started saving at the end of February, you would need to save $1,000 each month to reach your target. A final word about savings goals: make sure that they are realistic!
How do you know if you are meeting your monthly goals? Well, you complete Steps 2-5 (again) every month! I’m not going to lie, it isn’t fun, but it’s necessary if you’re serious about saving. I find it helpful to have a consistent date each month where I review and calculate my income and expenses. Just add it to your calendar now. Checking my spending every month holds me accountable for my purchases, and it’s quite motivating to keep saving when you meet each goal!
You work hard for your money, so you might as well use it for something significant! Budgeting doesn’t need to be confusing. If you want to create a budget plan that you can actually stick to, simply identify a motivator, calculate your monthly income, expenses and what is left over, consider how much money you need to survive, identify what you can reduce or cut out, set savings goals, then check on your spending every month. Follow these steps, and you’ll be saving in no time!
If you have any other money-saving tips, share them in the comments below.
Have a great week!
P.S. Grab the Budget Boss 2019 spreadsheet (pictured above) for FREE when you sign up to our VIP resource library! Details below.