Budgeting isn’t that hard of a task – it’s more a matter of actually doing it.
Are you actually going to do it though? People who smoke know the harsh consequences and they smoke anyway. They can’t assert to be ignorant when there’s a black lung staring at them every time they reach for a packet of cigarettes.
It’s the same for those who are overweight. They know the difference between good and bad food, that they should eat less and exercise to lose weight. But they don’t do it do they? Little by little they’ll get fatter and fatter until they are one of the many who are diagnosed with diabetes each year or they may have a heart attack one day. It just creeps up.
Basically in the short term, it’s easier to do nothing than it is to take action. But when you add up all the ‘short terms’ you get a long term and you get consequences. You have to think like this.
We all know what budgeting is about. It’s not that hard. You’re on a flat wage. You pay your fixed expenses then allocate some for debts and live off the rest or maybe even save some. That’s it.
If you do save some, you might have enough to go on a holiday or pay your car rego without borrowing…that’s great. The reality is that no matter how much we budget, things always pop up and throw the budget out. This can easily trigger the debt cycle again if you have no savings.
Consider this scenario….
You pay your car rego or take a holiday. You haven’t quite saved enough so you pay with a credit card. You intend to quickly pay your credit card off to repay the rego or holiday, but at the end of the month there’s always something more enjoyable and exciting that you’d prefer to spend the money on rather than repaying the credit card, so instead of paying the whole balance, you pay the minimum… or maybe even miss the payment. Sound familiar?
There’s no fancy way of putting it. You have to do it, and the earlier you do it the more successful you’ll be financially. And you’ll feel better because your well organized and are managing your resources properly.
So how do you get started?
Firstly, set aside a few hours. Get some paper or turn on your PC and go into a program like MS Excel. Next, put down what you earn and what your fixed expenses are.
Working it out over a month is often a better alternative, as bills are monthly and your pay cycle may be paid monthly or fortnightly.
Then track what you spend in a month and determine whether you’re able to pay your fixed expenses given what else you’re spending your money on.
Generally you can say that 2/3 of your money should be spent on living expenses like food, housing, transport and clothing, while the other 1/3 should be split between entertainment and longer term saving or repaying debts.
2/3 = food, housing, transport, clothing
1/3 = entertainment, longer term saving or repaying debts
In the early days, you might have to pull your head in on the entertainment sector and allocate most of that extra 1/3 to repaying debt. It’s not sustainable to consider repaying debt by taking from the other 2/3 (living expenses). i.e. I’ll eat baked beans for a year and ride a bicycle 30km to and from work and dress in curtains. Its too common for people to make the mistake of cutting themselves too tight on living expenses, so the budget quickly gets too hard and gets canned. Don’t kid yourself.
Take this example…
If Susan earns a net monthly pay of $2600, she might spend $600 on rent, $320 on fuel, $480 on food, $320 on bills, $320 on entertainment and clothes = $2040. That leaves $560 every month to repaying her credit card and the default she has to a mobile phone company so she can clean up her credit rating.
Net Monthly Pay = $2600
Budget
$600 Rent
$320 Fuel
$480 Food
$320 Bills
$320 Entertainment and clothes
$2040
This leaves $560 to help pay credit card and baycorp default
If I were Susan, I’d take the amounts budgeted for fuel ($320), food ($480) and entertainment and clothes ($320) and immediately transfer them into a separate bank account. The rest is strictly off limits for these purposes, and is only for rent ($600), bills ($320) and repaying debts ($560). If Susan spends less than she’s allocated for fuel, food, entertainment and clothes, then it’s up to her what she chooses to do with it. She may transfer it back and use it to repay debts or she may have a night out. A reward doesn’t hurt sometimes. Now that’s a sustainable plan.
Bank Account A
$320 Fuel
$480 Food
$320 Entertainment and clothes
$1120
Bank Account B
$600 Rent
$320 Bills
$560 debt repayment (credit card and baycorp default)
$1480
$1120 (Bank Account A) + $1480 (Bank Account B) = $2600 (Total Net Pay)
But she has to fully commit to it and do it. Or she’s just wasting her own time and waiting for someone else to sort it out. And you know what? They won’t. It’s up to you.