Creating a household budget for the year may seem like a lot of work, but you only have to do it once. And let’s face it, if you don’t know where you’re starting from, how are you going to reach your goals?
1. Get a clear picture of your finances
At its most basic, budgeting means making sure your household doesn’t spend more than it takes in. Write down all your income and all your expenditure. Subtract your expenditure from your income and see what that leaves you with. Use a budgeting tool such as the Irish League of Credit Unions app My Budget Buddy, available for apple and Android devices, to make sure you include everything.
2. Expect the expected
Ok, so there are certainly some expenses that come out of the blue – a broken washing machine or damage to your car – but many of the expenses that take us unawares are predictable. Back to school for example, comes every year, as does Christmas. You can predict roughly when you’ll need to replace tyres on the car or buy a new laptop, so include them in your expenditure if you predict them happening this year.
3. Start an emergency fund
It is advisable to have three to six months’ worth of living expenses in a savings account you can tap into if you have a crisis, like a medical emergency or losing your job. If you are not in the habit of saving, start slowly with a few euros each month. Then double that amount the following month. Double that again a month later and keep that pattern up. The bad news is you can’t really start saving until you have built up a good emergency fund, but the great news is that you will feel so much more secure and in control when you have one.
4. Set a savings goal
By the end of 2015, what do you want to have accomplished? It could be saving towards your child’s third level education or towards a place of your own. It could be saving enough to do that degree in digital marketing so you can change career. The main thing is to set a goal that’s achievable – owning a Learjet by December might be a shade too ambitious! Include what you need to save in your budget. When you know what you really want, you will have the motivation to make it happen.
Own up to life’s little luxuries. Your daily caramel Frappuccino with whipped cream or your glossy magazine really add up. Be sure to include them in your expenditure so that they are accounted for. You can then make a decision about cutting down on those little extras when you see that they are keeping you from reaching your goal.
Knowing how much your household has left over when daily, annual and occasional expenses are paid out reveals how much money – if any – you have to put towards achieving your financial goals. That’s your budget, now stick to it. Happy saving in 2015!
By Sean Murray