As the dust settles from the Christmas and New Year celebrations, many families want to put their finances under control to recoup money spent over the holidays, increase their savings and put a stop to overspending.
If you plan to do the same, the first step is to build a family budget to show how healthy your finances are. Having a budget is important, especially for huge goals such as when you’re starting off with your first home or you’re preparing for retirement and want to know how much you need to live on.
Here’s a step-by-step practical guide to help you get started. The starting line:
Write down how much surplus or spare money you have each month.
Use a budget planner:
You can download a free budget planner from the MoneySmart website or set up your own in MS Excel.
To create your own budget planner, design a spreadsheet with four columns and label them Income/Expense, Dollar Amount, Payment Frequency and Annual Total.
To calculate the Annual Totals paid:
- Weekly: multiply by 52
- Fortnightly: multiply by 26
- Monthly: multiply by 12
And so on.
Identify your after-tax income
The first entries at the top of the spreadsheet are for your after-tax income. This should include salary or wages, Centrelink benefits, child support and any income from savings or investments. You can use your bank statements to check that you’re entering these amounts correctly.
Enter all regular bills
Find all your accounts and identify all fixed regular bills.
- rent, mortgage, body corporate or strata levy fees, council rates and water rates
- utilities (water, gas, electricity, phone and internet)
- insurances (home, contents, car, health, and life)
- school, college and university fees
- memberships (cable TV and gyms)
Include bills for periodic accounts. Gas and electricity can vary from account to account. To get an annual amount for these periodic accounts, you may have to find 12 months’ worth of bills for your calculation. Also, be aware that some utilities send you a bill every alternate month and others four times a year. If you have the amounts for the 12-month period, you’re good to go. Add the amounts to get the annual amount for each account. Enter these into the spreadsheet.
Figure out how much you spend on food and grocery
With food items (supermarket, meat, fruit and veg, takeaway, bottle shop and pet food) if you’ve been using your bank cards, you should have a good idea how much you spent each week. Enter this into the spreadsheet. If you don’t know the amount, carry a notebook for a month and make a note of what you spend every time you shop.
Doing one big weekly shopping would be easier than if you shop every day. If you always pay for food items on a credit card or by EFTPOS, go through your statements for a couple of months to check that what you think you spend is what you do spend.
Include health and fitness
The next step is to enter health items (doctor, chiro, dentist, chemist, sport and gym). Some of these items are regular such as a gym membership. For others, you may have to guesstimate. For example, if Mum and Dad and the three kids all go to the dentist once a year, allow say $50 x 5 to cover this. If you have an ongoing health or dental issue, make an allowance for an annual cost based on experience.
Identify all housing expenses
A good family budget also includes housing costs include cleaner, gardening and repairs and renewals. If you have a regular cleaner or gardener, include what you pay them. For example a lawn mowing contractor who visits fortnightly in summer and three weekly in winter, it’s better to over-allow this and base the whole year on fortnightly visits. For your plans for repairs and renewals (including trips to Bunnings), make an educated guess based on experience.
Estimate transportation expenses
Transportation covers petrol, parking, public transport, car registration, and vehicle tyres and servicing. Some of these items are regular and consistent. For example, you’ll know that you fill the car every week and it costs $65.00. Or that your SmartRider recharges every month and it costs $150.00. Tyres and servicing will require either an estimate based on what you have spent previously or a phone call to get a quote.
Calculate your debts
If you buy everything on your credit card and clear this once a month with money from your bank account, there’s no need to enter this credit card payment on the spreadsheet. All costs from the credit card are already covered. If you’re paying off a personal loan, car loan, store card, investment loan or a credit card, include these regular payment amounts in your family budget.
Remember the children
Expenses for children include money spent on baby products, toys, babysitting, childcare costs, sports, activities, and excursions. You will know the costs for some of these but may need to guess for others. Enter a line for each item which is applicable to you and then include at least a reasonable annual amount.
Birthday and Christmas presents count too
Make a list of who you give birthday and Christmas presents to and the amount you spend on each person. Add this up to give an annual figure. Enter this amount.
How much do you spend on your lifestyle?
Again, enter a line for each item for the following:
- Cash drawn every week from the ATM – this is one of the hardest areas to control but you can do it if you make a note on the budget planner indicating how much you withdraw and how often.
- Children’s extra-curricular activities – include regular activities such as swimming and dancing plus an amount to cover the costs of any annual shows or competitions.
- Personal grooming – haircuts, beauty treatments, makeup, nails and so on.
- Holidays – include an amount for the family holidays.
- Pets – include an amount for the annual jabs and check-up plus something extra, just in case.
The Finishing line
Having entered the above in your family budget, you should have a total after-tax income amount for the year. You should also have a total expenses figure for the year. Now deduct the expenses from the income to get your surplus. If this surplus is more than the amount you wrote down at the start (see ‘The starting line’ section), you have underestimated somewhere. If your expenses exceed your income, review the budget to see if you have doubled or over allowed on an item.
Are you looking to spend less than you earn so that you can start saving? Get your free copy of “101 ways to find a surplus” available from our website.
Need help getting your budget into shape? Ask me today
Contact Mark at Chaston Financial Solutions 08 9524 2529 or 0419 275598. Or send Mark a quick email with “Help my budget” in the subject line. Do it now while you are still here.
Information current as at 1 January 2017.
Mark Chaston is an Authorised Representative (No. 263236) and Chaston Financial Solutions Pty Ltd ABN 18 091 037 366 is a Corporate Authorised Representative (No 1244249) of ClearView Financial Advice Pty Limited ABN 89 133 593 012 AFS Licence No. 331367 GPO Box 4232, Sydney NSW 2001. This information is of a general nature only and has been prepared without taking into account your particular financial needs, circumstances and objectives. While every effort has been made to ensure the accuracy of the information, it is not guaranteed. You should obtain professional advice before acting on the information contained in this publication.