Unfortunately, the vast majority of people in this world will have money struggles of some kind. It can often feel as if we will never have enough to enjoy all of the things that we want to and occasionally we will all make mistakes, such as over spending on a shopping spree. This can lead to debt, stress and worry. However, you can do many things to avoid this, and one of the best things to start with is a weekly budget.
Putting together a budget can be a dull and tedious task, and it can also take quite a long time. However, it is the best way to manage your finances and make sure that things do not spiral out of control. When you know exactly how much money you have coming in and how much you are spending, it becomes much easier to make sensible financial choices. When you break this down into weeks rather than months, it becomes even easier and it will help you find ways to save money towards your goals. Often the best motivation for building and following a budget is having something that you are saving for, such as a house, car or holiday. However, saving for the sake of saving is also a worthwhile goal. That said, let’s take a look at home you can begin building your budget.
Building a Budget Framework
1. Gather Your Paperwork
The first step is to gather all of your paper work. Before you start work on your budget, you should make sure you have hard or electric copies of all your financial documentation from the last half a year. This will include your monthly bills, your bank statements, pay slips, loan statements, receipts, and so on. If you have decided to put together a budget then it is important that you start saving receipts rather than throw them away.
2. Calculate Your Average Weekly Income
The next stage is to calculate your weekly income. You should write down all of your sources of income for the whole month. If you are a freelancer with a highly variable income then you should add together your income for the past three months and then divide it by three in order to work out what your average monthly income is. Once you have your monthly average income all you need to do is divide it by four to find out your weekly income. It is important to remember to use your income after taxes when building a budget.
3. Calculate Your Expenses
Next, you need to write a list of all of your expenses. You can do this either with pen and paper or with a budgeting program. To help keep things organised it is a good idea to split the expenses into categories such as eating out, food shopping, entertainment, gas, and so on. Then you need to add together the total you spend over a month and divide it by four to find out the weekly amount. You should then do the same with your monthly bills such as water, electricity, telephone, internet, and so on.
4. Split Expenses into Discretionary and Non-Discretionary
Now you have a list of all of your expenses you need to divide them into discretionary and non-discretionary expenses. Discretionary expenses are those that come from your lifestyle choices, such as eating out or a gym membership. Ideally, these expenses should come to no more than 30% of your total income. Non-discretionary expenses are those that you cannot do much about, such as rent or mortgage payments. Ideally, these should come to less than 50% of your total monthly income. After you have finished this, you should have a better idea of whether you are spending too much money on discretionary expenses. You should also realise if your current cost of living, including rent payments etc., is too high.
5. Calculate Your Left Over Money
Now you need to subtract your expenses from your income. Total your weekly expenses, both the discretionary and non-discretionary ones, and then subtract that amount from your weekly income. If you have money left over then you can put it towards your saving goals. If you break exactly even it means that you have no money left to save. Of course, if you finish with a negative number then you need to start adjusting your expenditure.
6. Adjust Your Spending As Necessary
You now need to make any necessary spending adjustments and this is the part that can be painful. If you are breaking even or spending too much each week then you need to find a way of cutting down your discretionary expenses. You need to look at every purchase made and work out if it was truly necessary or if it is something that you could have saved on. You can play around with the numbers to see how much you need to cutback in each category to reach the saving level that you are after. For example, you may see that you are spending too much money on visiting bars or eating out, and while it may not be something that you want to do, it is definitely an area where savings can be made.
Finding Sensible Budget Goals
1. Envision Your Financial Future
Work out what you want your financial future to look like. Rather than thinking about specific goals or career, try to consider what kind of lifestyle you are working towards. Are you hoping to buy property or do you want to use your money for travel? Are you hoping to keep accumulating in savings or to establish a safety net and then spend freely? Will you have to support others with your savings?
2. Put Together a List of Assets
Work out your total assets. This will include any money you currently have in the bank, any interest or capital in retirement funds or investments, the value of property, cars, and so on. While knowing the total value of your assets may not seem important, it will help you create realistic financial goals.
3. List Your Short-Term Goals
Write a list of your short-term goals. These should be things that can be achieved in less than a year. Once you have done this, sort them according to priority and cost and then decide which to start working on based upon the funds available in your budget. For example, you may wish to save $5000 for a new car. You need to divide this by the amount that you can set aside for it each week without exceeding your budget.
4. List Your Long-Term Goals
Write a list of your long-term financial goals. Think of things that may take five to ten years to complete. This could be something such as buying a property or increasing your retirement funds. Estimate by when you would hope to achieve these goals and how much each will cost. Then divide that cost by the number of weeks it will take to find out how much you will have to set aside each week to achieve the goal. For example, if you want to save $20,000 over the next four years. You need to divide $20,000 by 208 (the number of weeks in 4 years), and this shows that you need to save just over $96 a week to achieve the savings.
5. Enter Your Goals into Your Budget
Now you need to enter these goals into your budget. Decide which you are hoping to achieve first, often it is easier to start small. Put the amounts you need to save each week into your budget and check that it is possible without overspending. For example, if your budget shows that you have $150 a week available for saving but your goals come to $180 per week, then you will need to reassess them. However, if your goals come to less than $150 per week then you are good to go.
Making Intelligent Financial Decisions
1. Have a Weekly Budget Session
Each week you should try to have a budget planning session. Your budget will need continual updating and monitoring. Make sure you take the time each week to review your budget and make any necessary adjustments.
2. Try to Reduce Your Bills
It can never hurt to contact a company to see if you can reduce your bills. You may be able to secure a better telephone or internet package, or qualify for a loyalty program. While you shouldn’t badger the companies, contacting them to see if you are on the best plan will not cause any damage.
3. Use a Spending Tracking App
If you are struggling to keep track of your spending then find an app to help you. There are many of them available, both on the computer and phone. Try a few and find the best one for you. However, remember that they will only help if you use them properly and insist on putting every expense into them.
The idea of a weekly budget is to help you understand where your money is going and where you can cut back your spending. It doesn’t take long for budgeting to become a habit and by making sure to carefully follow your budget, you can save yourself a lot of long-term stress.
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