As a Financial Planner there is one thing I consider to be the most important starting point for anyone wishing to plan for their future. It sounds exciting, but I’m afraid it’s not. It’s actually pretty boring, and tedious; which is perhaps why so few people actually do it… budgeting.
Something most people would prefer they didn’t have to do, maybe because the results aren’t what we want them to be, or maybe because we think it will be too complicated, time consuming or just confusing. However in order to maximise your financial position it is essential. Personal finances need to be run like an efficient business; we need to know how much income and expenses are actually occurring in our lives. Budgeting will then allow us to identify which expenses, if any, can be cut back.
How do you get started?
A budget is a personal tool and can be as complicated or as simple as you like. The most important thing is that you make a start. You must first identify what timeframe to work on. Whether it is weekly, fortnightly or monthly, the end result should be the same – you just need to make sure its uniform. By grouping your spending into categories the task of budgeting becomes easier. For instance, add up the supermarket receipts from each week or fortnight, and lump this total under groceries rather than breaking them down to actual grocery categories.
The annual bills we get are fairly easy to do, we know when our car insurance comes in and approximately how much it will cost. Ditto for rates, mortgage repayments, car loans etc. Discretionary spending, which covers entertainment, holidays, gifts etc take more time to work out. It is often the discretionary spending that offers the most room for savings. When you are able to identify that you spent $3,000 on gifts last year, or drank $4,000 you can make a deliberate effort to reduce it. The key point is not that you act on reducing anything, but that you identify the costs and are then in a position to decide whether you should continue with the discretionary spending.
Fortunately there are a great many free budget planning tools on the web. Cornish Wealth Management have created an excellent budget planner which is freely available for your use. You are able to download the excel spreadsheet onto your computer.
To sum up, budgeting is a simple and effective way of managing your financial affairs. It is important to realise that making a budget does not mean that you are locking yourself into any limitations; rather it is simply allowing you to identify and monitor your expenditure.