Budget Planner on Steroids
Budget planning this way is highly accurate, and it is also highly confrontational. You will see expenses you regret, overlooked payments that should not have been made, as well as other insights into your spending behaviour. Stay positive and treat it as learning.
Step 1: Look Your Expenses for the past 12 months.
Budget planning involves setting realistic goals and sticking to them. How do you know what are realistic goals for you budget plan? A good way is to look at last year's income and expenses in a cash flow table, figure out what has changed and adjust your budget plan accordingly.
If you use your last 12 months bank transactions as the basis for your budget, you will incorporate ALL you expenses and not accidentally miss out quarterly expenses such as council rates, or annual expenses such as car registration.
Using your bank transactions as the source for your Cash Flow Table means it will be 100% accurate. Within the cash flow table only the category allocations can change, the amounts never do.
Step 2: Put Down Realistic Amounts for each Category
If you look at your cash flow table for the past 12 months and can see that you spend $200 per month on fuel and nothing will change in the future, there is no point putting down $50 per month for fuel in your budget. You are just deluding yourself.
If the cost of fuel has gone up it would be sensible to allocate more money in your budget plan for fuel costs. If you will be driving less, allocate less money in your budget plan.
Step 3: Expect the Unexpected
This is also known as "saving for a rainy day". It is important to know that we will not anticipate everything life throws at us. Unforeseen events such as medical bills, repairs or a sudden job loss may arise at any time. They won't all be bad either, some will be great.
Allocating money in your budget for unexpected expenses, could provide a financial safety net to help you weather some of these unplanned events
If you don't have a sufficiently large enough emergency buffer already built up, it's a good idea to take out a zero fee credit card to cover you while you build one up. Strictly FOR ABSOLUTE EMERGENCIES ONLY. This will help avoid crap like pay day loans.
Step 4: Review YOUR Cash Flow Regularly
Check your cash flow on a regular basis. By consistently assessing your income and expenses, you will gain valuable insights into your habits as well as identify areas for improvement.
This approach allows you to adapt your budget to changing circumstances, like salary adjustments, unexpected expenses, or shifts in financial goals and helps you make informed decisions that align with your long-term financial goals.
Step 5: Don't Forget to Enjoy Yourself
Life is for living. Play sport, spend time with family and friends. These things cost money too, so don't forget to allocate money to these activities.
