Budgeting Basics – Tough Love Rewards

Posted by nick on May 25, 2010 in Latest Guides & Learning Centre Updates with No Comments


Remember the old cliche that suggests, it’s those that love you most that will tell you the truth, even when it hurts most. Well, when it comes to money, if you don’t love yourself enough to

be honest, then no-one else will, or can.

Only you know your income, and your spending. So it is only you that knows the real truth and nothing but the truth, right?

If you don’t, then a budget is the best place to start! I know, I know, you’ve heard it all before, but we are going to try and simplify it for you.

We know that it’s pretty easy to get sick of people telling you to do a budget. It can be painful, time consuming and pretty boring for most. Worse, sometimes we know it will uncover some of the horrible truths in our spending behaviour.

But it’s confronting the reality of your situation that is the first step on the road to financial stability, and hopefully more personal happiness, from less money worries.

In taking that step to “Being Money Confident” we like to make it simple. So we will start with some basic concepts and then, in future guides, show you some tools to use.

Where its best to start is with the following question…

>  Are you are making enough money each year, or not.

Without knowing even this, it’s pretty hard to consider, investments, or reviewing your loans, etc.

So start with this 4-step guide, to help work out your basic budget health…

Step 1 – Money In

> List all of the money that you get after you have paid tax.
> Add it up to give you the total amount of cash you have.
> Calculate how much you get in total, on a yearly, monthly, fortnightly and weekly basis.

Then …

Step 2 – Money Out (Mandatory)

> List all the costs you have that you must incur to live.
Utilities, loans, outstanding credit card balances, groceries, clothing, insurance and savings. (Yes ‘savings’ should be a mandatory expense item, that way you will always be saving).

> Do the same as in Step 1 – Total up all these expense items as accurately as you can, and get a Annual, Monthly, Fortnightly and Weekly amount. The amounts need to be accurate, but not perfect, yet.

Then …

Step 3 – Money Out (Other Items)

> List in this section the expenses you have that you could really do without if you had too. Items like, work lunches, cigarettes, dining out, entertainment costs, gifts, extra clothing, shoes or sporting events etc. We are not saying you have to do without them, but you need to know where the cash goes.

> Again total these amounts up over a Yearly, Monthly, Fortnightly and Weekly basis.

Step 4 – Get an Indication of Your Financial Position – Cash Perspective*
Now, if we look at your ‘financial life’ or budget, across the year, you can get a decent sense of whether you earn more than you spend or your spend more than you earn. – Two very different outcomes!!!

You can also see how much of your money goes on Mandatory items, and how much goes on expenses we may not need to incur. If a greater percentage is spent on unnecessary items then either you have too much money coming in (good luck to you) or your aren’t spending as wisely as you can.

Step 5 – Facing the Pain, to reap the rewards.

It becomes clear from this approach to budgeting that you have 3 ways to improve your situation..

i.                Get more ‘money in’

ii.              Spend less money on outgoings

iii.             Do both of the above

Just like relationships, the long-term success is built on your willingness to collaborate and compromise. The same is true in finances. If you are willing to compromise on the items you don’t really need, and invest more time and money into savings, or paying down loans, then your overall position gets stronger. Its not always immediately satisfying, but money decisions are best made with the long term in mind – most of the time!

In fact, the rich get richer by doing both. And by doing one other thing. Investing the money they save, into investments that generate more money. You know, ‘make your money work for you’. But investments are for another time.

Right now, just go through this step-by-step guide to basic budgeting and you’ll being showing you at least care and are interested in a relationship with your finances, and they may start to show interest in you!

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