In the long run it will also help you save money because before you buy something you should first check to see if you have allocated funds in the budget for the purchase. If you apply this discipline, you will achieve financial success in the long run.
The key to a successful budget is making sure that it is realistic.
Here are 4 key tips on how to create a realistic budget.
1. Calculate how much money you spend each month
Be honest and don’t try to cut corners and say that you spend less than you actually do as this will be detrimental to your ability to create (and stick) to a budget.
Some months you will have more bills than others, but try and calculate a reasonable average. And for good measure, increase this amount by 10-15 per cent. That way, if you have unexpected bills thrown your way, you are covered.
Also, if you know you have car rego or insurances due, try and allocate enough money to cover those type of expenses which will become payable every year.
2. Calculate how much money you earn
Now it is time to determine how much income you earn each month.
This number may include but is not limited to your salary or any investment money which you might earn (like interest or dividend on shares).
3. Determine whether you have living above or under your means
You can answer this by subtracting your monthly expenses from your income.
If you have a negative figure after subtracting your monthly expenses from your income, then you will need to see what areas you need to reduce your planned spending. If you can’t reduce any spending, then you will need to get a 2nd job on the weekend.
Just remember, when you set yourself a budget, make sure that it is reasonable and is achievable. There is no point preparing a budget which is not realistic.
If you need to cut some fat out of your budget, you might need to shop around for some better deals on:
- electricity or mobile phone plans
- credit cards which charge less interest
- pay by the month insurance
4. Track your spending
Once you have set your budget, it is important that you check your spending against your budget every month.
If you need professional help with setting a budget or a plan to get out of debt, call Debt Free Australia on 1800 676 598.