As the New Year approaches, we should all be looking back at how our budgets worked out in 2012. Have we been successful in keeping our income and expenses in balance, or do we need to develop strategies to budget more effectively in 2013? If you are still unsure about budgeting, here is a quick guide to get you started:
What is a Budget?
A budget is simply a list of all your income and expenses. It allows you to assess how much you earn, and how much you should be spending to break-even or create a surplus for investments.
The Importance of Budgeting
Budgeting is extremely important for individuals, couples, and families. By having a clear idea of your income and expenses, you’ll ground yourself financially and ensure that you don’t overspend. For younger members of the family who are still in school, budgeting is an excellent lesson in the value of money, a skill that will serve them well in adulthood.
Budgeting is also very important in the current economy, because we are living in uncertain times. The best buffer you can have against uncertainty about your job or the effects of inflation is to create a surplus each month and invest this money so that your net worth increases over time.
Expenses
When you draw up your budget, start with the biggest expenses first and work your way down:
- Begin with your tax, bond, tithe, and car payments
- A minimum of 10% of your gross salary must be put aside for retirement.
- 2% of your gross salary should go towards emergency funds, held in an interest-bearing account.
- If you have children, you should include education savings
- Insurance policies must be included in your list of expenses
- The balance of your budget may be spent running your household, including rates, levies, groceries, entertainment and other expenses.
- If there is a surplus left, add it to your investments or retirement savings.
- Some schools offer a discount if fees are paid in advance – enquire at your child’s school whether this is the case.
Once you have a clear idea on what your expenses are, match them to your income – you may have more than one source of money coming in so make sure you take all of them into account. Does your income cover all your expenses? If it doesn’t, what is the shortfall? This may seem daunting to look at at first, but once you know what the figures are, you can start planning to rectify any deficit and saving any surplus.