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  • Writer's picturePaul

Budgeting – Where is all my money going?

Updated: Dec 1, 2019

DO A BUDGET. The words we have all heard a million times, whether it be from our parents to almost any financial book we have ever read. So why do so many of struggle with this simple piece of advice? In my experience it is because the vast majority of us don’t know how to budget, or make unrealistic budgets, get discouraged and then give up.

Generally, when we hear the word budget, we think of the traditional budget we are taught from our parents, writing down exactly what we are going to spend on certain items without any thought on how we are currently spending our money. However, this approach seldom works, because we almost always underestimate what we actually spend and end up trying to hold ourselves to an unrealistic budget and after a few weeks give up.

So instead of a traditional budget, try using what we like to call an active budget.

Step 1

Collect all your regular fixed expenses such as rent/mortgage repayments, insurance, utilities etc, as these are the easiest expenses to collect. Once you have them all, break them down to a fortnightly figure (or whatever suits you best) and enter them into a spreadsheet, notepad or use a budget planner.

Step 2

This is the easiest step, for the next 2-4 weeks keep on spending money like you are currently but keep your receipts or track spending on your bank statement and enter these into your budget on a cycle that suits you. Once you have done this for a period of time you will be able to actually see exactly where your money is going. Remember it is nearly impossible to budget if you have no idea where your money is going. So, make sure you break your expenses down as much as possible to get a better picture. For example, if you are drinking 2 coffees a day, have an expenses group for coffee don’t just put it down as eating out or food and drink.

Step 3

Now that you will have an accurate picture of where your money is going you can start to trim the fat in your spending. Budgeting is not about just cutting all things and feeling miserable about it, budgeting is like a marriage, continued compromise, so do this in stages.

Stage 1 – First of all, you can start to trim the things you can clearly see as a waste of money or you do not really need, for example those subscriptions you signed up for and never use. Stage one is all about the obvious things you can cut and wont miss.

Stage 2 – Once you have cut the things that are unnecessary you can start stage two, which is compromise. These are expenses that bring you pleasure but can be trimmed by looking at them differently. For example, I can still have my morning coffee but by going to a different café i can reduce the cost, or maybe I will cut back on the amount of times I buy lunch. Almost all expenses can be compromised so start with the easy ones and work up to the rest, this way you will be making small changes and enable you to stay focussed.

Step 4

With all your new savings you can start directing the funds to achieving your financial goals and objectives.

Try making your active budgeting into a game or competition to keep yourself on track and interested.

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1 commentaire

01 déc. 2019

Good advice!

Goals and a budget is definitely the best place to start!

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