How to Create an Easy and Effective Budgeting Plan
Staying on top of loan repayments together with other expenses doesn’t have to be difficult.
In fact, by creating a budget and managing it effectively, you’ll find budgeting really comes down to establishing a daily routine and sticking to it. Everyone has the opportunity to benefit from a budget, regardless of their income level – all it takes is a bit of commitment and perseverance.
Creating a budget doesn’t have to be difficult. You can find a bunch of free financial tools online that can help you get started and/or provide easy-to-use and ready-made templates you can simple download.
In its simplest form, budgeting is simply about adding up how much money you are bringing in (incoming), and how much money you are spending (outgoing), with an emphasis on what you ‘need’ to be spending and being transparent about spending on things you ‘want’. Once you have those two numbers, you have a good starting point that can help manage your daily spending habits and help ensure your outgoings are always less than your incomings.
The concept may seem simple, but the biggest budgeting challenge is being able to separate your wants from your needs.
Here’s three tips to help you on your way:
1. Identifying ‘needs’ and ‘wants’ with the 50/30/20 plan
As part of the budget creation process, you’ll start by writing down all of your necessary weekly/monthly expenses. You’ll most likely start with rent or mortgage repayments, then your weekly grocery shopping and utility expenses (such as power, water, internet etc.) as well as other necessary outgoings, such as petrol and/or transportation expenses. You may want to consider including any temporary expenses such as repayment instalments if you have an existing personal loan or financing a new vehicle etc. These all qualify as valid ‘needs’.
Where it becomes a little more challenging is listing the expenses that aren’t ‘absolute’ necessities. These expenses can include daily habits such as buying lunch, stopping by your favourite coffee shop, regularly topping up your mobile phone, buying cigarettes etc. Although the convenience and comfort of these non-essential expenses can be very difficult to manage, you can still find balance using the 50/30/20 budgeting plan.
It works like this – 50 percent of your (after-tax) income is allocated to “needs,” 30 percent allocated to “wants,” with 20 percent going to savings.
This way, budgeting doesn’t have to be all doom-and-gloom. You can still enjoy life’s little luxuries, just in moderation. Sticking to this plan may also prompt you to review your regular expenses for both needs and wants to find out whether you’re ‘getting the best bang for your buck’. For example, are you on the best mobile/broadband plan with your current provider? Are there other power companies where I could be getting a better deal for my household consumption?
Tip: Talk to a customer service representative about your current mobile plan or home broadband plan, and whether it’s the best plan for you or your household. Also take sometime to review other providers – great deals and free minutes are incentives that are pretty common for new customers or on offer to retain you as a customer.
2. Impulse buying
Here’s a few ways to avoid the ‘impulse buyer’ trap:
- Try to avoid ‘window shopping’ and do your best to reduce time spent online shopping.
- Recognise that ‘limited time offers’ and/or ‘special deals’ are merely marketing tactics.
- Sleep on it – commit to waiting 24-hours before deciding on a purchase. You may realise the following day that the purchase isn’t essential or you could potentially get a better deal elsewhere or in the not too distant future.
Stay vigilant and remind yourself that you’re budgeting for a reason.
3. Replacing items
Sometimes you might find yourself in a situation where one of your essential household items needs replacing, but you don’t have the cash readily available.
In this case, you may want to consider MYHome. MYHome can help sort all your homeware needs on a ‘buy now, pay later’ easy repayment plan which you can work into your household budget. This way you’ll be back up and running with a replacement in no time. If it’s your car that suddenly needs fixing or replacing, then check out Easy Driver who can help you get back on the road with a vehicle that matches your individual needs and budget.
Tip: Be weary of shiny new versions of your favourite products. For example, keeping up with the latest Apple iPhone means forking out a substantial amount of money, but are there essential features and Apps that justify such a significant investment? Maybe, maybe not.
Budgeting can seem like a chore, especially when you’re giving up a lot of the things you want. Just remember that you’re doing it for a good reason. If you can stay within your budget, then your surplus will begin to add up. You’ll soon find yourself living much the same as you did before, without missing the little extras all that much.