How to create a budget that works

Ahhhhh, the b word. I know, it’s not a favorite of mine either, in fact we try not to even call it a budget in my house – we opt for “spending plan” instead. B word or not b word, you need to have a plan when it comes to allocating your money and the first rule is? Don’t spend more than you earn.

The first step is to break your expenses/spending into separate categories [and these should ultimately correspond to separate bank accounts and that’s the step most people fail to put in place!]. There are plenty of templates around, I have a free one here {MONEYMODE BUDGET TEMPLATE} but you can just grab a blank sheet of paper or an excel workbook and start writing them down. 

This is such an important exercise because it brings attention to what you need to spend on the essentials and what you can afford/choose to spend on your lifestyle.  This is what I call ‘knowing your numbers’

Here’s your categories, ready?:

1. Your Essentials 

List out all your essential expenses, the ones you can’t get away with not having.   This should be the easy part because they should be easily predictable e.g. rent/mortgage, utilities, insurances, registrations, memberships. Be sure to include your savings goals here too.

If you choose to structure your bank accounts with this strategy, all your pay would go into this account and forget about carrying this card on you when you go out. Leave it at home to prevent overspending or tapping into savings.

2. Living 

I think it’s good practice to break out your groceries and transport costs from your ‘essentials’, because whilst they are essential the choices we make around these spending areas can greatly vary the costs!   This category is about giving yourself a practical allowance on what you think you need to spend in these areas.  The rules are that it has to fit comfortably within your budget after category 1 Essential expenses are taken care of.

List out what your living expenses are and what you think you need to spend in these areas for example groceries and transport. These things are essential but can blow out so it’s all about giving yourself a practical  weekly allowance.

3. Lifestyle  

List out your lifestyle expenses (e.g. eating out, shopping and all the other fun stuff 😉) . This is where the majority of us tend to get a bit  ‘tap’ happy so it’s giving yourself an allowance that works within your budget and still leaves money over to put towards your savings goals ;  I always suggest working on a weekly allowance in this category because once it’s up, it’s up and  you’ve only got a week to wait until the fun is topped up again.

The best way to work out how much you need to live within your means is to work out the annual costs and divide that figure per pay cycle. For the living and lifestyle categories, give yourself a weekly allowance regardless of your pay cycle and set up an automatic transfer.

Just to recap, work out your annual income, minus out the annual expenses under these categories and make sure there is money left over.  You can then allocate this ‘surplus’ money to extra debt repayments or savings depending on your circumstances. 

As I mentioned earlier, the first rule of money management is “don’t spend more than you earn”.
Make that your mantra and you’re on your way.

If you’re a Mum, come and join us in the Savvy Mumma facebook community where we share lots of tips like this

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This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This presentation provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

Renae Vercoe
Founder of Money Mode, financial professional, passionate educator, partner, mum and financial freedom fighter!