If the Govt has a budget, so should you
Budget 2017 has been hot news all month – what with the water price hikes and more – and it should. As tax payers, we should all be aware of how our government is spending (and collecting) our money.
But there’s a limit to what we can do about it. Unless you’re a high-ranking civil servant, chances are that no one has asked you for your input on how the Government should spend its tax dollars. While we can’t control the Budget, we can still make a difference on something a little closer to home – our household budget. And now that you know what you can expect from the Government, you can factor that into your own plans.
Gather your intel
You can’t make a plan without knowing where you are, and how you got there in the first place. The first step in creating a budget is to begin to have an idea of what your current financial situation is like. Take a morning to sit down, gather the relevant statements or log in to the relevant online accounts and start to build a full, financial picture.
Make a list of income vs expenses
If you’re into Excel and beautiful, colour coded spreadsheets, make one. If not, use a simple, lined notebook to jot down your findings. From your credit cards bills and current chequing account statements, find out how much you’ve earned and spent each month for the past few months. If you can do back a full year, do so. Create categories for spending if you can, for a clearer view of your spending habits.
Make a plan
Now that you know what your income and expenses roughly are, it’s time to make a plan. First, list your expenses in order of importance. Allocate money for housing (mortgage or rent), utilities, groceries, transportation – these are your non-negotiables. After all, you will always need a place to stay, food to eat and a means of getting to your job.
Pay yourself first
Next, think about how much you want to save each month. Set that money aside first, before you look at your discretionary spending. If it helps, open a separate savings account, and have this amount deducted as soon as your pay is deposited – this will stop you from spending it on unnecessary items.
The latte factor
Take a look at your spreadsheet now. Your income, less your non-negotiable spending and enforced savings, is what you have left for your discretionary expenses. Is this number more or less than what you already spend each month? Or do you need to trim some costs?
When trying to identify what expenses to cut, it’s important to distinguish needs from wants. Ask yourself: Can I live without this? Will it, in the words of Marie Kondo, bring me joy? Consider that latte you buy every day – that $5 really adds up. If you could pare $5/day for an entire year, that’s $1,825 or the price of a return ticket to almost anywhere in the world.
Once you’ve identified what can be cut and what must be spent, jot down these rough totals. You should have a draft income and expenses sheet with a few rough categories of spending. Congratulations, you now have a (very basic) budget!
The main stumbling block for many people is not the creation of a budget, but being able to stick with it. Set yourself up for success by thinking of a solution ahead of time. Different methods will work for different people – think about what will really motivate you to stick to the plan you’ve made.
For some, setting up an alert system with their bank that notifies them when an account balance hits a certain threshold helps. For me, I prefer to allocate a certain credit card (shop around for the best deal) for my monthly discretionary spending. It’s easy for me to check how much I’ve spent online, and I can track when I’ve hit my limit.
Now when Budget 2018 rolls around, you’ll be ready for it!