If you are one of those that puts together a budget that works out every month. Congratulations! Many people put together a budget, but it never works out. A week or two weeks before the end of the month you have no money left in your account and you don’t know where all the money has gone.
The biggest mistake you can make when putting together your budget is only thinking of your large expenses. For instance your bond, car, insurance etc. In the meantime, you also have a lot of small expenses and unexpected or indulgent expenses that you never think about.
The starting point of any budget is your nett income and any emergency fund that you may have. More about the emergency fund later.
The second point of your budget is your expenses and your actual monthly cash flow.
You have to get an accurate picture of what you are doing with your money every month and why your budget is not working.
I have found that downloading your bank statement every month will show you what you have spent money on. Once downloaded you can go through all your transactions and I am sure that you will be quite surprised to see what you have spent your money on. Here you can actually separate everything that you have to pay contractually, from the transactions that are additional like groceries and then luxuries like entertainment and expensive clothes. A lot of people miss small expenses that they have to pay monthly.
If you follow this process on a monthly basis, you will find out soon, where you have to start applying more discipline and cut down on your expenses. Once you have a clear picture of your expenses you will be able to put together a budget that will work for you. It might be a good idea to set a weekly limit on what you can spend on additional items so that you stay within your monthly budget.
If your expenses are more than your income, it will be a good time to negotiate lower payments on some of your contractual expenses, while you still have time to do that.
Just a few words about an emergency fund. It is particularly important to put a small percentage of your nett income monthly, into a separate account as an emergency fund. You can also add your annual bonus or other amounts that you receive excluding your nett income. The emergency fund can be used, if, for instance, the car breaks down or for any other unforeseen expenses. As the emergency fund grows you can also adjust it and for instance, paint your house or use the funds for other large expenses.
If you follow this process you will be in total control of your budget and expenditure and it will make your life much easier, with funds available when needed.
Good luck and happy budgeting!