Contrary to popular belief there are actually two main parts to developing a Personal Budget. There is the Planning of the Budget, the figuring out the figures so to speak. But then more importantly there is the Implementing of the Budget. This is the bit most people miss. In this second part of the Personal Budgeting series we’re going to look at HOW to go about planning out your Personal Budget for the year. And then in the next post I will outline the steps to implementing your budget so that it does the work for you!
Lets open with two quick disclaimers:
1. This is a TOTAL JUDGEMENT FREE ZONE! I have made HORRIFIC financial decisions over my life, from courses I never finished, to clothes I didn’t wear, to nights out I quite simply, can’t remember. So please don’t think I am in any way lecturing, I am only trying to share some lessons I learnt the hard way.
2. There is no such thing as a ‘Perfect Budget’. There is of course a ‘Perfect Budget for You’. If you google ‘How to write a budget’, you will be bowled over with info. What I am hoping to do today is just help you start finding your Money Sweet-Spot.
Now we have those out of the way, lets get going. If you haven’t already, enter your details below and download your own FREE copy of my Personal Budget Template.
The Steps to Writing a Personal Budget
So now you have your Blank Personal Budget Sheet, heres some tips on how to make it work for you.
Make a Date
The first thing you need to do is set yourself a time and space to fill this out. Give yourself an hour. That will be plenty of time to get started. Choose somewhere that you won’t be disturbed and that you can spread yourself out a little bit. Try and have a desktop with you, it can be really hard to read statements on your phone.
Try and pick a time like the morning when you are more likely to be alert. If you have joint finances make sure you can do them together at a time that suits you both. Once you have your date, make some coffee, grab some water and bunker in.
Choose your medium
I know some people who swear by paper and others who love to budget using excel. There is no wrong way just do it.
If you can manage the formulae in excel you can’t go wrong there, and once you have a budget sheet drawn out it will pretty much last you forever, you can just update it when needed.
But paper and a calculator will do just as well, just double check the numbers when you’re finished to make sure your figures are right.
Choose your Timeframe
This is hands-down the bit that confuses people the most.
Lots of people get paid bi-weekly, pay monthly bills, annual TV license, weekly grocery bills, three-monthly hair appointments etc… This is one of the main reasons that people forget or overlook regular expenses, because they are on different timeframes.
For now, choose your own. Again, it doesn’t matter which one you choose as long as you apply it across the board. I always find it easiest to work with the timeframe relevant to your salary. So if you get paid weekly, work with that, monthly work with that.
The easiest way now to capture this is to have three columns at the end of your expenses where you can add in Weekly, Monthly and Annual. When you’ve filled them in, come back afterwards and recalculate for your chosen timeframe.
So if you have an Annual Car Tax bill of €145, pop it in the annual column. If you get paid weekly, come back afterwards and divide it by 52. So essentially €2.78 of your weekly wage should be assigned to your Car Tax every week.
Start with your Regular Expenses
Most people are pretty good at this part. Taking your ‘Survival’ costs. Things like Rent or Mortgage payments, Car tax and/or insurance. Utility bills, commuting costs, phone bills Netflix etc. All the things that you need to just live your life basically.
Once you have a list of all of your life expenses it is worth figuring out how much they cost per year. This number is your lowest basic survival amount and its always a useful number to know.
So if your total household bills are €1700 per month, multiplied by 12 , you need a minimum of €20,400 to survive a year.
Once you have this basic living costs number, its time to get fancy!
Check off your Previous Years Expenses
In THIS POST I discussed how to prepare in advance of a budget and most of it was around collecting your expenses for last year. Once you’ve captured the ‘regular’, or ‘survive’ expenses like Rent, Groceries, Transport etc, now look back through last years expenses to see where else your money went.
For instance a GP appointment is €60. Most women attend a GP twice a year for Birth Control which then costs maybe €30 twice a year. So this is now a €180 cost per annum that should be taken into account.
Was there a weekend with your pals? A Spa day? Some physio for an old injury? Was there an unexpected wedding or a car repair?
Pop any of these costs that may happen again into your Budget Worksheet.
Take a look at the coming year
I also mentioned in the previous post grabbing a month to view calendar for 2019. Use this to pop in any special occasions you know will be coming up. Things like a new baby, a wedding, birthdays, even Christmas presents. Take a stab at how much each of these events will cost you.
Its also worth looking at things like breaks away, or even your Summer holidays, and start planning now.
A summer holiday could cost €750 for a flight, €800 for some accommodation and €850 for spending money. this totals €2400. If you are paid fortnightly, €2400 divided by 26 pay weeks means you should be putting aside €92 from each pay cheque to pay for your holiday.
As well as things you want to buy, look at things you want to do! Do you have a course you’d love to take for your career? Is there a workshop for a hobby you’d love to learn? Do you want to buy a new car? Are you saving for a mortgage or a wedding? Work out how much it will cost and how long you have to pay for it and start putting some aside now.
If you have three years to save €10,000 for your 1/2 of a dream wedding! If you get paid monthly that means you have 36 pay days between now and then. €10,000 divided by 36 means you should be saving €278 from each pay cheque for the next three years.
I appreciate people often choose to take a loan for big life events such as this, but its worth assigning as much as you can now to take the sting out of it later.
Start Planning for the Future by Saving
So many women I know have no savings. If you know me in real life you will know it is one of the things I fell most strongly about. I don’t mean saving for a particular thing, I mean just having some savings.
It doesn’t have to be big to start with. Maybe a €5 or €10 per week or even per month. Studies show it doesn’t matter how much you save but the habit of saving that counts. If you simply can’t commit to even that much at this time try and find another way to start saving some cash.
A few years ago I wanted to save but didn’t feel I had enough spare to set up anything serious. Instead I went to the Euroland and got one of those Money Boxes you can’t open without a tin opener and decided to only put in amounts BIGGER than €1. So no little change. Whenever I had some change from the shop or a night out I would pop it in the tin. If I got money in a card or a cash amount paid back to me, I would pop it in the tin. When I eventually opened it a year later I had over €500.
Savings matter, start small, but start.
So you have the numbers now what?
Well essentially you have a budget so congratulations you!
A Personal Budget is simply a record of the amount coming in (salary), compared to the amount going out (expenses).
If things are going well the amount going out should in theory be less than the amount coming in. If there is more going out than coming in, you need to either increase your income or decrease your spending.
If things are very bad and you are in a potential for serious debt, the earlier you tackle the issue the better. In Ireland there is a wonderful service called the Money Advice and Budgeting Service who provide free confidential advice. They are a branch of the, also wonderful, Citizens Information Board. Don’t ignore the issue. Debt doesn’t go away on its own.
So, What Next?
Well you have your Budget. Hopefully it wasn’t too painful! The next step is the one most people miss, its time to actually implement your budget! I’ll be covering that in the next post which will be live next Sunday.