Start by listing all the direct debits that hit your accounts. My list includes my mortgage interest, electricity, internet, cloud storage, gym fees, Netflix, and union fees.
Second, consider your variable expenses. My monthly amounts include cleaning products, basic hygiene items, gasoline, public transport fares, parking fees, tolls, food, doctors and specialists, medicines, daycare, books, stationery, clothes, haircuts, restaurant meals, and all entertainment expenses (I set a monthly fee of $ 100 each to amuse my son and myself).
Now, if you haven’t kept track of your expenses, chances are you won’t have a clue how much you are spending on each one. Its good. Make a wild guess. Only then can you enjoy the fun ideas later of “oh wow, I pass. WAAAAY more than I think ”or, on the contrary,“ oh cool, I’m not spending as much as I thought ”.
Budgeting is not about perfection; it’s about better understanding your consumption habits. On a deeper level, it’s also about whether what you’re spending money on actually makes you happy. But the first steps, folks.
Third, and this is the most difficult, you have to take into account all those big expenses which are outside your usual budget horizon or which only touch it irregularly. For me, these fall into seven categories.
- Housework: stratum fees, council rates, home insurance, water bills and $ 1,000 per year for emergency household repairs
- Auto: registration, comprehensive insurance, compulsory liability insurance, regular maintenance and repairs, spare parts and roadside assistance
- The school: tuition fees, uniforms and extracurricular activities
- Health: health insurance and $ 1000 per year for unforeseen medical expenses
- Birthdays and Christmas: gifts for me, my son and others
- Vacation: all costs associated with vacations
- Professional fees: financial, legal and other costs to get my financial affairs in order
At the start of each exercise, I estimate my probable expenses in each category. Because I budget monthly, I then divide these costs into 12 and include them as items in my budget (“Household Fund” etc.) to make sure I am provisioning for these future costs. If you don’t, a big bill will blow your monthly budget entirely.
Once you have a rough idea of your expenses, you can simply deduct them from your income to determine how much you can potentially save in each budget period.
Savings can take the form of cash, investing in stocks, contributing to a retirement pension, or, most often, paying down or paying off debt (including principal payments on credit cards. , personal debts and mortgages).
It took me a long time to figure out, but principal payments on debt are actually a form of savings because they free you from debt or create equity in an asset you own.
This is a trick, however, because lenders usually don’t tell you how much your principal repayments are. You should calculate them as a residue between your total debt payments and interest charges.
In my budgeting system, I list my interest charges as part of my expenses and factor in principal payments on my mortgage as part of my savings. If that’s too difficult at this point, you have my permission to just include all debt service charges (total mortgage payments, etc.) as an expense. No baby.
If this all sounds a bit harsh, congratulations! You understand. All good things are worth a little work. And taking control of your financial future is part of it.
But you’ve read this far, so I think you’re up for the challenge.