Budgeting isn’t the most glamourous or exciting thing in the world, but it’s something that you, really need to do! Creating a budget will give you control over your money, rather than the other way around. If done diligently, it will help you create a surplus of money to set aside every month, which you can then use to build a wealthy future.
Seriously, before you do anything else, commit to getting a budget done first.
Free budget template
Attached to this page is a template in xls format, that you should be able to open in Excel, or Google Sheets. It’s set up so you break your regular outgoing payments into either weekly, monthly, or annual payments. This means it will accommodate everything from what you spend at the cafe every week, to monthly rent and taxes, to annual bills such as home insurance or car repairs, and automatically calculate the daily, weekly, monthly, and annual amounts.
Basically, you just need to fill in the green boxes (there are a couple of pre-filled values which you can edit), and the spreadsheet should take care of the rest.
I would suggest that for annual payments, you look at how much these are costing you per month, and set up another account with your bank Use this to automatically transfer the total monthly cost for these annual payments into the separate account. For example, if your annual payments total 1200 pounds, then you’d want to transfer 100 pounds per month into this account. This allows your budget to cover those larger, infrequent costs which can otherwise ruin your finances for months!
Be as thorough as you can. You really want to try and cover everything. I would suggest going back at least 3 months of your bank and credit card statements to ensure every payment there is covered somewhere on the budget. Personally, I have a monthly entry which covers purchases for the home, and for eating out, which acts as a catch-all for a lot of items.
Making some adjustments
Once you’ve completed your budget, you should have a good idea of exactly where your money is going, and you can see how you’ll be able to make small changes, and how that might allow you to start setting some money aside for creating wealth.
Surprised how much you’re spending on groceries? Perhaps you can cut down on expensive brands, or cut back on the wine. Go down the list and ask yourself if you could possibly save. Utility bills and TV subscriptions are the kind of things that might seem an easy target, but if you’re really serious, you should consider things like rent and mortgage payments too. This is a time to seriously examine every aspect of your life and decide what changes can be made so you can prepare for a wealthy future.
I wanted to share an update which illustrates just how important budgeting is. A friend of mine started to budget his finances properly in May, and shared with me his credit card statements for the last year. All of his grocery spending and money that goes on home improvements, and going out with his family goes onto his credit card. Once he had set a value which he could stick to for groceries, home improvements, and going out every month, he calculated his previous 11 months credit card statements based on this value.
The table below shows the percentage of the budgeted value spent. Say, for example he had budgeted 300 for groceries, 200 for home improvements and 200 for going out, then 100% of his credit card budget would be 700 pounds. For these values, April, for example, he actually spend over 1400 (204% of 700 pounds). You can see in June 2017 he only spent 92% of his budget. It goes to show, that if you don’t have a target to aim for, then the result is always overspending! As soon as he set a target, he was able to meet it straight away. He said doing this made him aware of just how much he was spending, and allowed him to prioritize things and cut out waste.
On average, the amount he spent over the new budget is 222% over the last year! That’s a lot of money which could be going into an ISA, for example.