31 May 2007

Step 5 - Writing up your budget

A budget is really a spending plan. Having a budget does not restrict you but instead it gives a feeling of freedom and relief. When you spend according to your budget, YOU make the decisions on where your money will go, YOU decide how much will be spent and YOU decide how much you will save.

I resisted having a budget for years because I thought it would be a restriction and I refused to be restricted in any way. Now I know having a budget gives you a kind of freedom that not having a budget doesn't come close to. Before my budgeting days I used to feel a mild guilt and unease when I spent money, now I know that what I spend has already been allocated for spending and I have no worries when I come to buying what I want. Having a budget is not being tight either. You will still enjoy your life, probably more so, but you'll do it within the controls that you have set for yourself. Having a budget doesn't mean you'll never spend. It means that you'll identify your needs and what you really want, and save money in areas that don't matter so you have money for things that do matter.

(Please note, these downloads are no longer available.)
I have two pdfs for you to download in my downloads section on the right side of your screen - Sample Budget and My Spending Plan. One is a sample budget, the other is a blank form, based on the sample budget, that you can use to write up your own spending plan. In the sample budget, you can see the proposed spending in the left column, in the right column is the actual money spent. As you can see in this budget, it was $82 under budget. That is $82 that was allocated but not spent. This money would go straight towards your debts. You would pay your normal monthly or fortnightly payment and add $82 extra to it. If you are debt-free, you would put this money toward something you're saving for - Christmas, a holiday, a new computer, aquaponics tank, whatever.

You have two types of spending - fixed bills and cash spending:
In MY SPENDING PLAN, you can write up your own budget. The figures at the top are all your fixed bills. Get out some old bills and calculate how much you pay for all your services, insurances, registrations, rent, rates etc over the course of a year, then divide by 12 to get your monthly amount. As you can see in the sample budget, my fixed bills come to $765 per month. That amount is transferred into a special bill paying account every month and is not touched. When each bill comes in, it is paid for out of this account, preferably by direct debit.

Under the fixed bills section, there is the cash spending. This amounts to $655 in my budget. I withdraw $655 from the bank every month. I have a set of ziplock bags on which I've written the amount and the category. For instance - IGA/Aldi and I put $250 in that bag. When I go grocery shopping, I take some of that money, do the shopping and if there's anything left over, put it back in the bag when I come home. I do that for every category I've written - Groceries, Transport, Health, General. You decide what your categories are and you decide how much goes in each one. Just try to make it the least amount possible without getting yourself into trouble. At the end of the month, the left over money - $82 this month, goes to pay off debt or to what is being saved for.

PLEASE NOTE: A month, or monthly plan, actually means every four weeks. Mark this on your calendar because it's important that you transfer your amounts to your bill paying account and withdraw your month's cash every four weeks, not every month.


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