You’ve told me a thousand times!
You have probably heard this more than once. Maybe from your mother or grandmother or that weird aunt that won’t eat bread but loves toast.
“Make a budget and stick to it.”
– Aunt who wont eat bread
They always, very conveniently leave out the ‘how’ part of the equation like it should be some intrinsic knowledge we all have. Look I’m not going to tell you like I’ve got the key. Budgets are easy but sort of not so without rambling on, I’ll just go ahead and get into it.
1: Figure out your cash-flow.
This step is the most complicated of them all, but because it’s the first step it turns a lot of people away. Trust me though, after this step, everything gets a lot easier.
So what is cash-flow? In simple terms, cash-flow is the money that is actually yours. Cash-flow is the money you have left after you pay your dues such as bills and mortgage. Figuring out your cash-flow is the next part so read along slowly and make sure you understand, if you get confused then just go back to the top and read it again.
You want to figure out how much money you make whether that be from investments, your salary or your monthly bank robbery. (For legal reasons, that’s a joke) Figure out how much money you much money you make every month and write it down.
That’s your income
Now you need to figure out how much of that money you owe to other people. Lets say your monthly income is $3k and you owe the following.
(Don’t forget to add in expenses that span over a few months, just break them down)
- $1.1k Mortgage
- $400 Utilities
- $400 Fuel
- $250 Land Rates
- $80 Car Registration
- $120 Insurance
- $20 Netflix
- $15 Gym
- $500 Groceries
All up, you’ve got an expense of $2885 a month which means your cash-flow is $115 a month. That’s all of the money that you don’t owe anyone. What you do with that money is up to you. A lot of people just spend it on movies and eating out or other activities and end up living paycheck to paycheck.
Now you’ll here this from every personal finance guru (Which legally I am not, I write blogs) If you aren’t using your Gym membership, cancel it. That goes for any membership service you have that you don’t use. Don’t pay for it if it doesn’t provide any value. You could save hundreds of dollars a year if you cancel unused memberships.
Insurance. Shop around, this goes for all of your regular bills and utilities. Make sure you are getting the best deal possible. Shopping for better deals again could save you hundreds every year.
Land-rates. . . Sorry I can’t help you there. Tax is tax.
Groceries. Try buying home brand goods in stead of brand name. You’ll be surprised how quickly a $160 shopping bill can go down to $100 when you are paying $1-$2 less on every Item.
You could turn that measly $115 monthly cash flow into $500 or even $1000 if you’re diligent.
What to take away
I don’t know if much of what I’ve said here will help you but hopefully you’ve learned at least enough to figure out your cash flow and maybe some tips on reducing your expenses. There are troves of information about budgeting and what does and doesn’t work. If you are searching for a budget type then remember that the most important budget is one that works for you.
Personally, I have a zeroed out budget or as some call it, ‘give every dollar a name’ but that’s a story for another time.