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Budgeting to make the most of what you've got!

Budgeting is simply an assessment of your income and your expenditure and is the plan you create to manage your money.

And the simple rule of managing a household budget is that you need to earn more money than you spend so you have a positive cash flow. If you don’t and you are spending more money than you have, you will have a negative cash flow and either need to earn MORE money, or spend LESS.


The key here is to know exactly how much money you’ve got coming in and where it all goes – so you need to be informed. Only then can you look at HOW you can manage your budget better.

Step 1: Assess your income
The first step in preparing any personal budget is to know how much money you’ve got to start with – your income.

Income is what money comes in the door and could be from your usual job (either as a salary, or a wage), welfare payments, child payments or returns on investments. So what is YOUR weekly income after tax? You can get this from your payslip or by adding up the inputs into your bank account.

Be careful you don't overestimate your income if it includes penalty rates or overtime, in fact you’re better off UNDER-estimating your income for your budget so any penalty rates or overtime become a nice little bonus!

And if you’re preparing a household budget, also include your partner’s income.

Step 2: Determine your Expenses
This is a little harder, but it is important to be as realistic as possible when estimating your expenses. In fact it is better to OVER-estimate your expenses for your budget so you have a nice little bonus if you don’t spend your full budget allocation for a particular expense.

Some expenses are fixed (they more or less the same every week or month, such as insurance premiums), but others such as groceries will vary from week to week depending on what you use. It may be worthwhile going through your credit card and bank statements for the last few months to see exactly where your money is going. Or use the Expense Record in the ToolBOX to keep track of expenses.

Also, don't forget about the yearly bills such as land tax/ rates and car registration. These are often big bills, but must be allowed for in your spending. To make it easier to tally your expenses, convert all your expenses to a weekly cost. For example, if your yearly car registration bill is $520, divide this by 52 to get $10 per week. By doing this for ALL of your expenses, you will be able to see exactly how much you are spending on average every week.

Are your weekly expenses more than your weekly income? If so, you have a negative cash flow (not good) and really need to cut some costs and BUDGET.

Or are your weekly expenses less than your weekly income? In which case you have a positive cash flow (good thing), but where does all this extra money go?

Step 3: Now set yourself a budget
By budgeting, you can make better use of the money you already get – so you may not need to earn more money after all!

From your weekly income you know how much money you can spend, and from scrutinizing your expenses you should now have an idea of what expenses you can cut and where you can save some money. Use this information to set yourself expenditure targets – and stick to them! You’ll be surprised how quickly your savings start to improve.

And as part of your budget, you need to allow for:

  • An allocation for your living expenses – weekly costs and the big bills that come in from time to time, as well as allowances for gifts and a little luxury if you can afford it.
  • Debt repayment – and make extra contributions if you can to reduce your debt faster.
  • Savings and financial goals – whether you’re just saving for a rainy day or saving towards a specific financial goal, you need to allocate these contributions in your budget.
  • Investments and retirement planning – put some money away for the future. One day you WILL retire and need to survive from your savings.
There is a budget worksheet in the ToolBOX to help you achieve your financial goals. Or if your computer skills are better than your maths, then try one of the personal budget software packages available.
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We are not certified financial planners or advisors. The information in this website is general information only. Always consult a licensed financial planner before making any finance or investment decision.

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