Most people budget without even knowing it; hitting the snooze button for those extra few minutes of sleep, or skipping a big lunch in favour of desert. Budgeting essentially refers to the measuring, planning, and trade-offs we make in pursuit of a goal.
Rather than seeing a financial budget as a list of sacrifices that must be made, it helps to treat it as the plan that allows you to live the life you want.
Why bother?
Ideally, a budget is a spending plan which ensures that you are always living within your means. By ensuring you always have the money you need, sticking to a realistic budget can give you financial peace-of-mind. In fact, research suggests that those with a budget have more financial wellbeing than those without.
Budgets have many purposes and can be applied to individuals, businesses, governments, and most institutions that have a financial interest. A budget can be used to manage ongoing expenses (such as monthly mobile phone and credit card payments), factor in large investments for the future, or help you pay back debt. Most budgets will change over the course of their lifetime as the objectives and obligations of their user changes.
Once you have created and implemented a budget, you will become more familiar with where your money goes and how to get the most from your income, which will further inform your budget. Developing a more detailed understanding of your finances will also enable you to extend your budget into the future (“budget forecasting”). This not only makes regular outgoings more manageable; it allows you to save for important investments, pay off debt, and balance your finances when income is fluctuating.
Where to start
One of the easiest ways to start budgeting is to:
separate your banking into different accounts. For example, you might dedicate one account called Essentials to everyday expenses like groceries and transport; and another called Lifestyle to entertainment, eating out, and extras.
Start by working out how much you earn and deduct what you spend on essentials, then add further categories depending on your budgeting goals.
Alternatively, you might utilise an emergency account and contribute money to be used for actual emergencies such as car troubles or health issues. Many opt to use a credit card as their emergency fund, however as previously noted, this should also be budgeted for.
Budgeting apps and online resources like Moneysmart’s Budget Planner make the entire process of creating and sticking to a budget a lot easier and (dare we say) comprehensive.