LIFESTYLE

Budgeting and Finance

• Do your monthly expenses exceed your monthly income?
• Do you have problems saving money each month?
• Do you wonder where all your money goes each month?

Did you answer ‘yes’ to any of the questions above? If you feel like your life is getting out of control financially, you need to develop a personal budget system so you can better manage your personal finances. Think about it, how can you possibly manage your money if you have no idea where it all goes each month? You need to become disciplined with your money. If you are reading this, you have already taken the first step towards that end.

Tips to consider:

1. Keep it Simple (At First)

The best way to get started is to put together a very basic list of your monthly income (i.e. your payslip) and expenses. Just give it your best guess. Stick to listing things you can easily identify: rent, car payment, insurance, utilities (you get the picture). As time goes by you can add more detail.

2. Determine your Monthly Income

To be effective, you must determine how much you make each month. This is not as straightforward as it seems. If you get paid once a month, it's easy - just use the amount from the payslip. If you get paid on a different schedule use the chart below:

Monthly Salary Calculation

3. Expenses

This will be the difficult part. It will be more difficult than income sources because you may have many more expenses than incomes. You will also most likely have hidden expenses or expenses you currently do not realise exist. Group these expenses into categories as best you can - you can always re-categorise later. Just prepare your list for now, don't worry about estimating the amount spent each month.

4. Recording Revenues and Expenditures in a period incurred

You need to select your time period, preferably a month. Then match all your revenues for one month against all your expenses. Don't record an expense to the proper month based on when you paid the bill, but rather record the expense in the month that reflects when the expense was incurred. For example, you get your electric bill on the 23rd of each month and it is not due for payment until the 3rd of the following month. In June you pay the bill early (on the 23rd), but the July bill (which arrives on 23rd July) you don't pay until 3rd August. If you recorded your expense based on the date paid, you would not have any electricity expense recorded in July (since the June bill was paid on 23rd June and recorded in June, and the July bill was paid on 3rd August and recorded with August expenses). By matching revenues and expense to the period in which they occurred, you will be able to determine if your monthly expenses exceed your monthly income.

5. Establish Estimates for Monthly Expenses

Make your best guess for some of those items that are not reoccurring. It may take you a couple of months to get good at estimating the more difficult expense categories. If you find you have a large amount of money in any one category, consider breaking it down into more detail. Utilities are a good example. You may want to break it down into: (1) Electricity, (2) Gas, and (3) Water.

6. Tracking Actual Expenses

You need to keep track of your actual expenses incurred during the month and group them into these categories. It will be easy for things like rent, phone. The tough part will be those cash expenses (lunches, socialising etc.). If you don't have a good memory, carry a small pocket size note book with you and write them down as they are incurred. Or, you can take the easy, but much less accurate, option and each time you withdraw cash, guess which categories these cash expenses will fit into and record them. You can always adjust them later. This way, you will at least have something recorded and are less likely to forget that £5 purchase of lottery tickets the other night.

Further information on financial management.