So, if you are ready to begin the budgeting journey – where do you start?
May I just say, to use a budget effectively – you do not need to be good at maths, or using a spreadsheet…
you just need to be determined and to persevere!
1. I would recommend that you start by making a list of all the expenses that you know of – just brainstorm. Its best to do this on a piece of paper to start with and then transfer it to a spreadsheet later. You don’t even need to worry about the amounts yet. Just write down the names of any bills you pay, things you buy regularly, etc. Don’t worry about the order of items or categories yet, just the names of what will become your budget items. Your list might start something like this gas (petrol}, car insurance, household insurance, monthly rental, food, eating out, hardware, garden, telephone landline – and cell phones, internet, clothing, etc. Try to be specific but don’t go into too much detail with things like food – broad budget items can be broken down later.
2. Add an estimated amount to each item – you can refine the amounts later, just get something down
- Some items on your budget may be fixed like monthly rental or bond payments – these amounts are easy to record.
- Some items vary each month like your telephone, electricity or water. A good amount to start with would be to take an average of the past 3, 6 or 12 months. Remember that your winter electricity or water bills might be different to your summer ones, etc. so adjust your estimate accordingly. Don’t worry if it is not quite accurate as the first month will just be a trial run and you can update amounts as you go. If you’d like to use a spreadsheet to calculate your average there are many ways to do this but a simple was is to go to any cell on the spreadsheet (if your amounts are R563, R668, R445, R545, R633, R677 then you would type the following =(563+668+445+545+633+677)/6
- There will also be items on your budget that you don’t know what to record. This is where the budget will be greatly effective and be a great help in showing you where the money goes. You need to learn how to plan for and record everything you spend without it being complicated and cumbersome.
- note – I would find this pretty much impossible without internet banking – I highly recommend that you sign up if you haven’t yet. Let me know if you have concerns about its safety as my hubby is an internet security specialist and I can tell you a bit about how it works.
For the first month you should build a buffer of about 5% of your total income into your budget because many of your budgeted expenses will not be accurate and may be under the actual cost. You can do this by adding a budget item called buffer and calculating the amount.
3. Once you have written down everything you can think of, have a break and come back the next day to do the next step. This will help you to think of budget items you may have forgotten and to complete your list of potential budget items before continuing to the next step. Add items to your list as you think of them. Here is a list to get you started… look through this list for ideas but don’t add things unless you are sure you need them.
4. The next day start by adding to your list any items you can think of, then…
- Read through your list and try to make a new list of categories that the items fall under. e.g. Bank choose names for your categories that suit you. I find this works much better than trying to use categories someone else came up with. Here are some ideas to get you started: HOME EXPENSES, DAILY LIVING, SAVINGS, INSURANCE / RETIREMENT, VEHICLES, OUTINGS / MEALS OUT, UTILITIES, – or you could group DEBT into one category, or FIXED MONTHLY PAYMENTS into one category. What works for you?
- Try to group all your budget items under the categories ending with a category called miscellaneous for those items that are once off or irregular or don’t fit anywhere else. I have many individual items which I put into the budget each month. I find that works much better than just having a general “extras” category. So in a given month the last few items on my budget under miscellaneous might be DUVET COVER R200, GARDEN HOSE R300, MOM BIRTHDAY GIFT R?, MAKEUP R300 as we think of things we would like to purchase that month. MAKEUP is an example of an item that only needs replacing every 6 months or so but is expensive enough to be added as an individual item.
You are now ready to start entering the information into your spreadsheet
Come back tomorrow to learn how to go about this…