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How To Make a Monthly Budget (A Step-by-Step Guide)

Creating a budget is the most important step you can make in improving your financial life. Having all your income and expenses in one place allows you to analyse and manage your finances. If you have no idea where your money is going, it is impossible to stay on top of your bills. 

We will help you understand why you need a budget, and how to create a budget with the steps below.

Why Do You Need a Budget?

The key to a successful financial life is being consistent, and lack of understanding can often lead you astray when it comes to a budget, this is why you need to create a budget to manage your personal finances. 

4 reasons you need a budget:

  1. It helps you to keep your eye on the prize – we all have money goals. Whether it is to send your child to university or to pay off your house sooner. A budget allows you to keep your eye on that goal and stay on track to reaching it.
  2. A budget allows you to curb your spending – sometimes we can spend too much. Having a budget helps you to avoid spending money you don’t have. 
  3. It sheds light on bad habits – bad money habits can often go unnoticed until we shed light on them by having a budget. These bad habits can cost you a lot of money, having a budget can help you to identify these bad spending habits.
  4. A budget helps you to prepare for emergencies – a budget helps you to plan ahead and stay in control so that when unexpected expenses/ emergencies arise; you know how to handle them in terms of your finances. 

How to Draw Up a Budget?

Getting started is the toughest part. For many of us, finances do not come easy, numbers confuse us, and this leads us to avoiding budgeting all together. However, this needn’t be with our step-by-step guide below:

Decide How Your Are Going to Record Your Budget

In the 21st century we have many options for recording our budgets. You can use a budgeting app, a spreadsheet or even a budgeting diary. Find whichever medium that suits you and is easiest for you to do consistently. 

Gather Your Bank Statements and Cash Slips

The next step is to gather all of your spending and earning information. This includes bank statements, credit card statements, cash slips and any other statements you deem necessary for your monthly spending. You can also view a summary of your transactions on your banking app. Having this information together will make the next steps easier. 

Record All Your Income

Now that you have your medium and your financial information, it is time to start the budget. Step one is to record all your income for the month. This includes your salary, extra income, side hustle, rebates and allowances. 

Record All Your Fixed Expenses

The next step is to record all your fixed expenses. Fixed expenses can be described as expenses that stay the same month after month and do not vary. Examples of this are bond repayments, car repayments, insurance, school fees and medical aid. This can also include subscriptions and debit orders that run consistently. 

Create a section in your budget for these expenses as they are predictable.

Record All Your Variable Expenses

Step three is to create a section for your variable expenses. These expenses vary from month to month and are often made up of many purchases inside a budget category. This includes grocery spend, clothing, petrol, transport fees, electricity, water and eating out. This is the section where you can look for bad habits and overspending.

Allow a small category for miscellaneous or budget buffer. This is a small amount in your budget to help you in the event you overspend. This buffer will help you to avoid going into debt and if the buffer is not used, it can go towards your goals. 

Analyse Your Budget

Now that everything is recorded in your budget you finally have a bird’s eye view of what is going on in your financial life, identify areas where you may be overspending or areas where you could save some money. 

Set Goals

The last step is to set your goals. Now that you have drawn up and analysed your budget, you can finally start to set attainable financial goals. Do you want to grow your retirement savings? Start setting these goals and calculate how much you can contribute to these goals on a monthly basis. 

One goal many people forget to add is an emergency savings. We don’t know what will happen tomorrow so putting aside some money for emergencies is a great idea to give you peace of mind. 

With some dedication and consistency, you can improve your financial life through budgeting. Budgeting is one of the key principles we teach our clients in our 12 month foundation financial literacy course. It is part of our Bond Optimiser way to not only help you, but also to equip you for a better future. 

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