Simplifying the way you manage your finances can make sticking to a budget much easier. Limiting the amount of time it takes to actually manage your budget will make it more likely that you will do it. With the right technique it should only take you 20-30 minutes a week to stay on track.
The most time-consuming part of the process is the actual setting up of the budget. So don’t try to do this with a house full of kids and other relatives over the holidays. Allocate the time and place, and stick to it. If necessary put a “Do not disturb” sign on your door, turn off your phone, and disconnect from the internet (eliminate distractions!).
While there is a plethora of software to ‘simplify’ the preparation of a budget, a simple spreadsheet is all you need. Don’t complicate the process by having to learn a new program.
A good first step is to gather up all of your bills and receipts that you can find around the house. A credit card statement is perfect if you charge most of your purchases. Begin your document by listing your monthly income and expenses. For this you will require a rough estimate of how much money you spend on different expenses each month. You don’t need to be precise, but err on the side of more rather than less with expenses.
Be sure to include:
* Mortgage/rent payments
* Utilities costs (electricity, gas, phone, water etc)
* Groceries
* Food
* Transport
* Car expenses
* Clothing
* Education expenses
* Entertainment
* Gifts
A Simple Budget
One of the simplest types of budget is called the “60 Percent Solution”. In essence, this budget aims for you to fit your monthly expenses within 60% of your gross income.
Following the 60 percent solution will help cover all your bases: short and long term savings, recreational funds and retirement planning. These can be what often break a budget, because people fail to budget for them.
While the percentages will vary depending on your circumstances, consider these guidelines:
60% – Monthly expenses
Housing, clothing, food, transportation, utilities, insurance, communication.
10% – Retirement
In some countries this forms part of a compulsory superannuation plan, but if it doesn’t for you, you should have this deducted automatically from your paycheck.
10% – Debt reduction or long term savings
This is your long term savings or “emergency fund”. You can speak to a financial advisor for recommendations on how to invest this money.
10% – Short term savings
This is your savings for annual events such as birthday and christmas presents, or your more “every now and then” type costs such as car and appliance maintainance, or unforseen medical costs.
10% – Pleasure
This will include recreation, eating out, movies— whatever you want, without the worry of breaking your budge.
Having a household budget with fewer categories will make it much more manageable and help you to realise your financial goals.
