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This
booklet gives information of a general nature and is not intended
to be relied on by readers as advice in any particular matter.
We suggest you consult your financial planner on how this information
may apply to your own circumstances.
Other formats
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WHY BUDGET?
Budgeting is the process of balancing income
and expenditure so that you can manage your finances for
a defined period. Doing a budget is simply a matter of
noting down all of your income and all of your expenses,
and then subtracting your expenses from your income to
see what you have left. This is your "disposable income".
Budgets are often thought
of as something necessary for individuals or families
on modest incomes or for those paying off debt. However,
everybody can benefit from a budget, even the most affluent.
A budget can show if you are living beyond your means
and spending more than you are earning. You'll be able
to see where your money is going and where you could cut
back. You can use a budget as a tool to help you save
for a financial goal like a car or overseas trip. You
can also use a budget to prioritise debt repayments. |
TAKING
THE FIRST STEP
You can start a budget by simply writing down your income.
Remember income can come from many sources, not just your
salary or wages. For example, you might also receive dividends
from shares you own, rent from an investment property,
or board from an adult child. If you receive a government
payment, you should also include these payments as income.
The next task is more time consuming: listing your expenses.
Writing down your expenses will identify what you are
spending in the major expense categories, such as housing,
groceries, transportation, utilities, medical/health,
insurance, clothing, entertainment, education, travel,
etc. It may sound arduous, but the effort can be worth
it. |
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Here
are two different methods to list your expenses:
1. TAKING THE FIRST STEPThe
most accurate approach is to note down every cent you spend on a daily
basis over a three month period. You could simply record your expenses
by hand, using a separate page for each week or you could use a spreadsheet.
If you can, divide your expenses into the major categories, as this
could help you identify areas where you can cut back. If you use this
approach, also think about including your annual expenses, for example
your insurance premiums. The advantage of this approach is that it
allows you to see exactly how much you are spending. If you have never
done this before you will probably be astonished by how much you actually
spend, and what you actually spend your money on.
2. REFER TO YOUR RECORDS
You could also use your bank records, such as credit card and bank statements,
to draw the information from. If you use your credit card to pay for
most things and have direct debits set up from your bank account for
your regular expenses, this approach can be an effective way to gather
information on your expenses. Your credit card in particular will
itemise your expenses, such as groceries, restaurants, clothing purchases,
etc. The advantage of this approach is that it allows you to begin
your budget now without having to collect information over the next
few months. Alternatively, you could use bills, such as utility bills
or school charges, to calculate expenses. If you use this approach
it is important that you make sure you collect all the information
to include in your budget.
GETTING YOUR TIMING RIGHT
It's
a good idea to match your budget to your pay period;
which may be weekly, fortnightly or monthly. That
way you can use your budget to help you manage every
income payment effectively. |
CONVERTING YOUR NUMBERS
Not
all of your income and expenses will be for the
same timeframe, so you'll need to convert some of
them to make sure your budget figures are accurate.
If you pay a certain bill by the month, but your
budget is for a fortnight, you might find it easy
enough to work out what the fortnightly cost of
this bill would be. But some of the conversions
might be a bit tricky to do in your head - the conversion
guide below will help you to make your budget accurate
(and so will a calculator!). |
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GATHERING INFORMATION ON EXPENSES
Whatever
method you use to gather information on expenses
for your budget, remember to make sure that
you take account of small and large expenses
as well as expenses that may be daily, weekly,
quarterly or annual. The more information
you collect, the less likely you are of being
surprised by an unexpected expense.
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MAKE
MY WEEKLY AMOUNTS
FORTNIGHTLY |
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MAKE
MY WEEKLY AMOUNTS
MONTHLY |
| Multiply
your weekly amounts by two - the result is the fortnightly amount.
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Multiply
your weekly amounts by 52. Divide the answer by 12 - the result
is the monthly amount. |
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| MAKE
MY MONTHLY AMOUNTS
FORTNIGHTLY |
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MAKE
MY MONTHLY AMOUNTS
MONTHLY |
| Multiply
your monthly amounts by 12 - divide the answer by 26 - the result
is the fortnightly amount. |
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Multiply
your monthly amounts by 26 - Divide your answer by 12 - the
result is the monthly amount. |
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MAKE
MY YEARLY AMOUNTS
FORTNIGHTLY |
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MAKE
MY YEARLY AMOUNTS
MONTHLY |
| Divide
your yearly amounts by 26. |
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Divide
your yearly amounts by 12. |
KEEP A RECORD
The next step is to complete a budget planner. You can fill
in the one below, create your own or use one of the many made
available by banks and other financial institutions. You can
find these ready-made planners online or ask for a printed version
from your bank.
REGULAR INCOME
Use
this table to write down your regular income.
|
TYPE
OF INCOME
|
AMOUNT
RECEIVED EACH PERIOD
|
| Salary
or wage (after tax) |
$ |
| Pension
or government payment |
$
|
| Child
support or other income |
$ |
| Regular
interest from bank deposits |
$
|
| Regular
income from investments (such as rent from an investment
property, distributions from a managed fund, or dividends
from shares) |
$ |
| Other |
$ |
A.
TOTAL INCOME
FOR THIS PERIOD |
$
|
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REGULAR EXPENSES
Use
the table below to write down your expenses. It's
also got room to include any savings you set aside,
and any regular debt payments. Start by filling
in your fixed expenses - they are the ones that
don't change from period to period, such as your
rent or loan repayments. Your variable expenses
are trickier as they will go up and down. You
will need to work out the amount for each period.
We've left some blank spaces at the end of each
category in case you need to add any other expenses.
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KEEP YOUR BUDGET ACCURATE
Use
after-tax income figures (this may require
you to make an adjustment if deductions
have not been taken into account), e.g.
imputation credits for dividends paid
on shares Do not include irregular income
that may not be reliable, e.g. annual
performance bonus, gifts of money Calculate
using consistent expense periods, e.g.
weekly, fortnightly, monthly.
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HOUSEHOLD
EXPENSES
|
EDUCATION
|
| Rent |
$ |
School
fees |
$ |
| Repairs |
$ |
University
fees |
$ |
| Gas |
$ |
Tuition |
$ |
| Electricity
|
$ |
Books & uniforms |
$ |
| Water |
$ |
Camps & excursions |
$ |
| Telephone |
$ |
|
$ |
| Internet |
$ |
|
$ |
| TV (Cable/ Satellite) |
$ |
OTHER EXPENSES
|
| Furniture & appliances |
$ |
Child
care |
$ |
| Groceries |
$ |
Pet
care |
$ |
| Council Rates |
$ |
Gifts & donations |
$ |
| |
$ |
Hobbies & sports |
$ |
| |
$ |
Audio & visual |
$ |
|
PERSONAL EXPENSES
|
|
Subscriptions |
$ |
| Clothes & shoes |
$ |
Movies |
$ |
| Hair & beauty |
$ |
Restaurants/
eating out |
$ |
| Sundries |
$ |
Alcohol/
cigarettes |
$ |
| |
$ |
|
$ |
| |
$ |
|
$ |
|
TRANSPORT EXPENSES
|
|
SAVINGS
|
| Car |
$ |
Personal
superannuation contribution |
$ |
| Registration |
$ |
Regular
savings account installments |
$ |
| Parking |
$ |
Regular
installments into investments |
$ |
| Fuel |
$ |
Christmas
club etc |
$ |
| Repairs/
Maintenance |
$ |
Holiday
savings |
$ |
| Public
Transport |
$ |
Money
for emergencies |
$ |
| |
$ |
|
$ |
| |
$ |
|
$ |
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MEDICAL EXPENSES
|
|
DEBT REPAYMENTS
|
| Doctor |
$ |
Mortgage |
$ |
| Chemist |
$ |
Car
loan |
$ |
| Dentist |
$ |
HECS
payment |
$ |
| Specialists |
$ |
Credit
cards |
$ |
| |
$ |
Personal
loan |
$ |
| |
$ |
Store
cards |
$ |
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INSURANCE
|
|
Lay-bys |
$ |
| Home
& contents |
$ |
|
$ |
| Car |
$ |
|
$ |
| Health |
$ |
B.
TOTAL SPENDING
FOR THIS PERIOD
|
$ |
| Income
protection |
$ |
| Life |
$ |
| |
$ |
| |
$ |
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ARE YOU BALANCED?
Now that you've completed the income and expenses tables, you
can clearly see how much regular income you receive, and where
all that money goes over your chosen period. Using the totals
(A and B) from each table, subtract your total expenses from
your total income:
|
|
Your
total income
|
Your
total expenses
|
Your
disposable income
|
| $ |
-
|
$ |
=
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$ |
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If your answer is:
- Positive,
your income is greater than your expenses. This means
you could be saving some money.
- Zero,
your income equals your expenses. You may want to
consider reducing some expenses in order to build
up some savings.
- Negative,
your expenses are greater than your income. This means
you are living beyond your means and should think
about finding ways to cut back on your expenses. The
bigger the negative number the more you will need
to reduce your spending.
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SOME PROS & CONS
A
budget is the best way for you to get an overview
of your financial position. If you are serious
about taking control of your finances it is
a step you need to take. You may find some
things you weren't expecting and it can help
you to establish some savings goals. When
you start the process be aware that it can
be time consuming and fiddly translating your
day-to-day income and spending into a budget.
And you may not like the result. Sometimes
it's easy not to know just how much debt you
have. |
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