So let’s get practical and talk about the nuts and bolts of it.
In last week’s article I eluded to the fact that there are only three simple steps involved in putting a budget together. Let’s focus on Step 1 - “Getting a reality check”.
With any journey you have to know both your starting point and your destination. Get either wrong and you may end up in a very different place. Many people skip this step and that’s why their budgets often fail.
Knowing where your money is going now helps you understand your current spending habits and patterns. This is not about beating yourself up. It’s simply to help you get some clarity. Then you can make empowering choices for the future.
My favorite way of doing this first step is to take a small pocket notebook and writing down every cent you spend for a month. Then you sit down with a simple spreadsheet and tally up the expenses into categories such as lunches/coffees, magazines, fuel, entertainment, clothes, haircuts and so on. Tally all your expenses from the notebook and put them into a monthly expense column.
Next, make a list of all your other regular bills and direct debits (insurance, phone plans, internet). Also get out your last few quarterly bills and calculate an average monthly figure for electricity, gas and so on.
Don’t forget rent, car payments, personal loans and credit card payments. At this stage, I recommend you only use the minimum monthly payment for these. We’ll talk about a simple system to effectively reduce debts another week.
A couple of items which should appear in any budget (but often don’t) are long term savings (i.e. NOT for spending) and money for holidays, Christmas and birthdays. I like to have a separate online bank account accumulating money for these kinds of things.
Now, are you regularly giving some money away to a good cause? Would you like to be? There’s much controversy about the concept of tithing. Nevertheless, for most of us giving to others is a big reason we seek financial freedom in the first place. It also makes us feel great and keeps the energy of money circulating in the universe. So why not at least start small?
Ok, now that you’ve collated all your expenses, add an extra column so you can project everything to an annual figure.
And there it is – your reality check. Are you surprised to see how much the seemingly ‘little things’ add up to over the course of a year?
Remember this is not about beating yourself up. For most people it usually is a pretty big fat eye opener though.
The great news is, now that your eyes are open, you can move on to making changes.
But let’s talk about that next time. For now, maybe go and grab a pocket notebook...
Miriam Castilla is an award winning mortgage adviser who started her working life as a Petroluem Engineer, with a variety of different businesses and careers along the way.
Born in Germany and emigrating to Australia in her teens as the daughter of a Greek diplomat, she's fluent in three languages and sees herself as a 'citizen of the world'.
Her passion is to empower and support others to achieve their personal, business and financial goals.