Successful personal budgeting for 2013
The ultimate tool when establishing a household budgeting plan is an income and expenditure spreadsheet. Detailed ones are pretty common on many home PC’s and on the internet. There is also a free tool attached with this website under calculators.
Before starting on a personal budgeting exercise, it is important to have all of the facts. Generally, this is broken down to two key components:
On the income side, if one is a PAYE worker, then their recent pay-stub or most recent P60 will have all of the required information. Self-employed are a different matter, but they should have sets of accounts.
The big issue is on the expenses. I always advise people to focus on the small items because we all know the big expenses like mortgage repayments and insurance costs. For example, food snacking, smoking and odd little spends here and there can add up to the thousands of Euro per year. So, for a 4-week period, ask for and keep a receipt of everything you purchase:
So, here is what you need:
1. Income documents
2. Spending receipts
3. Bank statement (this will show your direct debits for various payments)
4. Credit card statement
List your expenses as follows:
The Unplanned Costs
- Home repair & maintenance
- Medical bills (Doctor, Dental, Eye care)
- Car repair & maintenance
The Expected Costs
- Property taxes
- Water Charges – (not required yet but are on the way so plan for them!).
- TV License renewals
- Insurance & Protection costs (life, home, health, car)
- Bank loan repayments
- Child care payments (and maybe child support payments)
- Credit card payments
- Household rent or mortgage payments
- Broadband connection
- Utilities (ESB, Phone, Gas)
- Car payments
- Transportation (bus, petrol – hey, don’t forget the tax-saver scheme if you use public transport – ask your place of work for more details)
- Impulse purchases.
Good Habit Costs
- Sports membership
- Charitable contributions
Bad Habit Costs
Personal budgeting will allow you to view what money you need to make ends meet and live comfortably as well as which expenses you can live without. If managed well, it can even allow you to increase contributions in order to plan for a comfortable retirement.
However, before you tackle personal budgeting, look at some of the reasons why personal budgets sometimes fail.
1. Failure to prioritise expenses (in Ireland, debts come two ways, Priority and Secondary – a mortgage is a priority debt, a credit card payment is a secondary debt. Because credit cards can be a convenient source of instant cash, some people can be prepared to make credit card payments when they need to pay other debts first). Remember, utility arrears are a priority debt.
2. Failure to budget practically for normal out-of-pocket expenses like food and petrol.
3. Failure to plan for the unexpected. This is big issue for some people where say an emergency car repair expense can put a household budget in the red.
Top priorities on any expense list are food and shelter. Shelter includes your rent or mortgage payment as well as mortgage protection, car insurance among others.
Next in line are essential utilities like heat, electricity, and water service.
Car loans are essential to your budget if your car is essential to your job.
Home insurance (required by lenders in Ireland) and health insurance should also hold a place on your list of priorities.
Along with discretionary expenses, low priority expenses include unsecured loans, and credit card payments. Make sure your personal budget takes care of essential expenses and then consider the rest.
Practical Personal Budgeting
Put the amount of money you have left after tracking your spending at the top of your budget. Next, add your net monthly income. You may have calculated this when you tracked your money, but if you didn’t your net income is the money you take home each month.
Add these figures together. Your total is your available cash for this month’s personal budget.
List your expenses by priority. List the total amount of each expense and the date it is due.
Transform weekly expenses into monthly. Then, divide annual, semi-annual, and quarterly expenses by 12, 6, and 3 to calculate a monthly figure for your budget.
Use data from tracking your spending to determine your discretionary expenses.
Include a monthly figure for unexpected costs. Also, if you’re not saving regularly, do allow for some savings, it will give you a buffer for the unexpected and serve as a bonus if nothing goes wrong.
Making Your Personal Budget Work for You
As you begin personal budgeting, it’s not uncommon to find your expenses total more than your income. Always take care of top priorities first. Then work on making practical decisions for the rest of your expenses.
- If you don’t have enough money to take care of the priorities, you will need to find a way to generate more cash.
- If an expense isn’t a priority, roll it into next month’s budget. However, if you can’t pay a bill or meet a minimum payment, do contact your utility provider or creditor and let them know. Tell your creditor when you will be able to pay the bill. Don’t let creditors make budget decisions for you.
- Look over discretionary expenses and see what you realistically are willing to sacrifice to make your budget balance.
- Can you cut down on food costs and personal care items? When shaving Euro from these expenses, consider purchasing generic items and shop brands for a few weeks (or months) until your budget is under control.
- Will your utility (ESB, Eircom, Vodafone) company allow you to make partial payment on utility bills?
- Could you carpool or take alternate transportation for a couple of weeks to save on vehicle expense?
With a growing number of homeowners facing stagnant wages and increasing costs, the demands on personal finances have never been so great. This trend is not likely to reverse itself anytime soon. So, it is very important that good personal budgeting habits are developed and adhered to. It can be possible to maintain personal financial well being but this needs to be done on a long-term basis. Develop a personal budgeting plan and stick to it…it will pay off in the long-run.