Budgets Don’t Have To Be Complicated
Drawing up a budget is one of the most important, if not the most important thing you can do.
It doesn’t have to be an overly complex one either. It can be as simple as putting away 10% of your income as savings each time you get paid. But one thing you do need to do when creating a budget is to write down how much money you have coming in and how much you have going out.
Usually the coming in part is the easiest, so start there. For most of us this is a wage of some kind. But if you work more than one job or are lucky enough to have some other income stream coming in regularly then total all of this up - this is your incoming.
The outgoing is a little harder. Write down on a piece of paper or in excel or wherever you like a complete list of all your outgoings. This will include rent or mortgage, bills, travel, food, clothes, basically anything your spend money on. Take time to do this as you need to have a comprehensive and accurate list.
Add up both lists and if your incoming is higher than your outgoings you are doing well already. If your outgoings are more than your incoming then you have a problem. And you will need either to increase your income some how or cut back on your spending.
That’s why creating a list of all your expenditure is a good idea as well - it gives you a list of areas where you can possibly cut back to save money.
Now it’s time to figure out a budget.
As an example I am going to show you my budget (I have blacked out the actual amounts - hope you understand why). I used a simple excel spreadsheet to create mine, but if you don’t have excel you can always use Google Doc’s spreadsheet or Open Office (they are both free of charge), or simply use a pen and paper.
My budget is not overly complicated but I have given it some thought. The trick is to draw up a budget that you easily understand and are comfortable with. There is no point in making up a budget that tracks every cent if you aren’t going to understand or follow it.
As you can see all my expenses are listed on the left hand side. I have bundled all my bills up for simplicity sake as I found that far easier than keeping track of each one separately. Then all I did was to calculate the total of all my bills and work out how much they came to per fortnight (which is how often I get paid). This is how much I need to put aside each pay for bills.
The first four are pretty normal expenditures that most of us have. Travel is simply how much my weekly train pass is (multiplied by 2 as the budget is made out for the fortnight). The fifth one, misc expenditure, is simply money put aside for anything that crops up that I need to buy that isn’t a day-to-day expense. For example if I needed to buy a new fry pan then I would use this money.
The last five entries are where I think some explaining in required.
While the names I have given them are pretty much self-explanatory, I will touch on why I have these budgeted for.
It is very important when making up a budget that you cover everything that you have to and want to pay, and this includes yourself. The two most important entries for me on the list are “savings” and “fun money”.
Every time I get paid I place approximately 15% of my wage into a free high-interest earning online account that I never touch, and another 5% into an account I can access using my debit card.
The savings account is my base savings and, like I said before, I never touch it. If I save nothing else each fortnight it will be this 15.7%. The 5% is money that I can spend on whatever I want totally guilt free. It’s important that when making up a budget that you leave something for yourself. Otherwise you will find it very hard to stick to. And besides, everyone likes to treat themselves occasionally.
The three “funds” I have set up in my budget - the health fund, super fund and the FU fund - are all important to me and each have their own separate free high-interest earning online account that I transfer money into each and every fortnight.
The health fund is one that I have only recently created and is mainly due to the fact that I don’t have any private health cover. I have never liked paying for private health cover as I always saw it as a big waste of money, but I also have the occasional medical bill (be it the dentist or physio) so that money is there to cover any medical expenses I may have.
The super fund is for topping up the super contribution that my employer makes. They contribute 9% and from what I have read you should be putting away at least 12%, so this makes up that shortfall. I am not sure what I will be doing with this money just yet. Two thoughts I have had so far is to take advantage of the co-contribution scheme the government offers, or to try and invest it myself in a mini-self-managed fund of my own.
The last one on the list, the FU fund (which stand for Fuck You Fund), is one that I read about a little while ago and thought was so funny and brilliant that I had to incorporate it into my own budget. The FU fund is money that you set aside just in case you need to say FU to your employer or you get laid off or cannot work for whatever reason. Basically it’s a buffer that you can use when you lose some or all of your income.
From what I have read you should have at least 8-12 weeks worth of income in your FU fund. I am nowhere near that yet but I am well on my way. It will take me a total of just over 4 years to save 8 weeks worth of income at my current rate, but I am not too worried about this. I figure having some money in there is better than not having any. And I can always add to it later if I want to.
So that’s my budget. I have a look at it at least once a fortnight and I am always looking for ways to improve on it or tweak it. A budget doesn’t need to be static, especially when you first start one. And if your circumstances change, you budget should change to reflect that.
What does your budget consist of?
Image credits: Jeff Keen and Gaetan Lee
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[...] Personally, I would feel comfortable with 8 weeks worth of income in my fund. (Incidentally, I don’t technically have an “emergency fund” but I do have what is called an “FU Fund.” You can find out more about the FU Fund in this post.) [...]