Budgeting – how to achieve more from your money

Budgeting can be a fantastic tool to help your money go further. In our latest blog we highlight the basics of budgeting and how you can make the most of your hard-earned cash.

How to get started

  • Calculate your income after tax

Most people know their salary, but it is important to note down your take-home pay – which is how much money you take home after tax and other deductions. You should also include any means of income outside of your salary.

Knowing how much money you have after tax will make budgeting a lot easier.

  • Track your spending

You should categorise your spending to identify where most of your money is spent. This will help you determine which expenditure will be easiest to cut back on.

Start by listing all your fixed spending – things like monthly bills, rent, mortgage and vehicle payments. Knowing how much you spend on these can be helpful when budgeting.

Then, list your variable expenses – things that are likely to change from month-to-month, such as groceries, fuel, and entertainment. Typically, your variable expenses are likely to be the easiest to cut back. The best way to begin managing and tracking your variable expenses is by looking through your credit card and bank statements and categorising your spending, from most required to least required.

Make a plan

When you have a good idea of what you are earning against what you are spending – make a plan. Examine where your money is going, and whether you have the capacity to cut back on any of your expenditure.

The first things you should think about cutting back on are commodities: the things you want but do not really need. Perhaps you can spend a night watching a movie at home instead of going out to the cinema? Or produce a more budget-friendly meal at home rather than spending in a restaurant? Try adjusting your numbers to see how much you can afford to cut back.

If you are spending more than you are earning, or if your budget isn’t allowing for as much freedom as you would like, try to scrutinise your expenditure in more detail. You may even benefit from adjusting your fixed expenses – but this can be harder to do if you are in fixed contracts, for example.

Pitfalls to budgeting

At the beginning of your budgeting journey, it is easy to become overwhelmed.  Consider the possible pitfalls of budgeting outlined below:

  • Overestimating your income: it is easy to look at your income and forget about any deductions. In which case, you will overestimate the amount you earn, and you may be planning to spend money you do not have
  • Underestimating your expenses: it is important to be vigilant with your expenses. Although it is easy to ‘cheat’ your budget, this will not help you manage your money. You may benefit from writing a daily budget entry on paper or on your phone – quickly jot down any daily expenses and at the end of the month, calculate and reflect on what you have been spending.
  • Not having a strategy: when starting your budget, consider what you want to achieve, do you want to save money for a rainy day, pay off your debts or something else? Having a strategy for your budget is important to help you achieve your goals. For example, if you unexpectedly require money due to an emergency, it would be convenient to have savings which you can fall back on. As such, you may want to add savings to your list of ‘expenses’ to plan for this eventuality.  Alternatively, you may want to see some more growth from your money and be interested in investing – if this is the case, speak to an expert to find out how they can help your money go further.  Remember to keep in mind that investments can fluctuate with market volatility.

Budgeting can be a fantastic way to manage your expenditure and essentially save money. By planning carefully, and being strategic with your budget, you can achieve more from your money.

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