Knowing that more money is coming in than going out each month requires writing it down and seeing in black and white, if this is the case.
If a little effort is put in at the beginning you should not have to alter it much after that. Although this depends on how complicated your finances happen to be.
A budget can be as simple or as complex as you like. Here’s a simple spreadsheet to get you going. Feel free to download the Excel version and add in your information. This does not have to be done on the computer. A pen and a piece of A4 will do the trick.
Great, a spreadsheet but what do I do with it?
Add all of your the incoming payments (usually salaries) under the ‘Incoming’ heading. I realise your monthly salary may not be the same each month. If this is the case then average it out over the last 3 to 12 months.
Add all of your outgoings under the ‘Outgoing’ heading. This should include all standing orders, direct debits, rent, mortgage and so on. Anything that is setup to come out of your bank account automatically. If you pay for items yearly, then divide the yearly cost by 12.
The basics are going to be rent/mortgage, utility bills and food. Food is a difficult one of budget for. If you shop weekly, look at the bills over the past 4 weeks (if you pay by card, it’ll be on a bank statement) and add that total to the spreadsheet.
The ‘Total Incoming – Total Outgoing’ number at the top is how much money is left after taking all of the outgoings off your salary. Now this can be the scariest bit. Either realising that this is not as high as you would like or that it is a negative value.
Even if it doesn’t look too rosy at the moment, CONGRATULATIONS! This is probably the most important step in wanting to achieve any financial goal, whether that is getting out of debt or saving for a house. Now you’ve got an accurate picture of your finances. You can go on and plan your future. Well done!
You may be surprised to know that it’s this simple. There is no black magic, no golden bullet. Just numbers. Either on a screen or written down. I bet this chap wishes he’d gone through this exercise.
Next up we will look at high interest debt (credit card/payday loans) and why this should be tackled first when managing your money.