If you’ve recently been convinced of the importance of budgeting, you may currently find yourself fired up and ready to craft your own budget.
That’s great!
We do understand, however, that it can be quite a difficult thing to get right or even know what’s right. Luckily for you, that is what this article is about.
We’re going to talk you through the ins and outs of what your budget could look like, hopefully giving you a springboard from which to work and begin your journey to real financial freedom!
Let’s get into it.
Step 1: List your Total Income
The best way to start the budgeting process is by writing down every bit of income that you earn in a month. Remember, this is your net income, and it should include other streams like freelance work or side hustle profits.
Step 2: List your Expenses
Don’t panic! Just breath.
Start by listing the non-negotiable bills and debit orders that you pay every month. Make sure you and your family are provided for by listing the things that you need to live. Groceries, rent, electricity, petrol, and insurance can all be included here.
Once you’ve covered your needs, have a look at any debt you may have and commit an amount each month to paying it off. Then think about the future and what you’re willing to invest in it. Decide on the kind of savings you want to build and include them in your monthly expenses.
The final part of your expense list comprises the classic ‘wants’ category. These are the things you do that bring joy and entertainment to your life and help you live it in a well-balanced way.
By the end of the first two steps, you may have created something like this:
| TOTAL INCOME | TOTAL EXPENSES |
| Salary – R10 000 | Groceries – R1 000 |
| Extras – R2 000 | Electricity – R1 000 |
| Rent – R7 000 | |
| Insurance – R300 | |
| Savings – R2 000 | |
| Entertainment – R700 | |
| Total – R12 000 | Total – R12 000 |
*The above example is a very rough draft and you’ll probably have a whole bunch more to include!
Step 3: Subtract your Expenses From your Income
Once you’ve recorded your total income and expenses, the next step in the creation of your budget is to minus what your expenses cost from your total income and make sure that you end up with a big fat zero.
This is an example of a zero-based budget, one of the many different budgeting techniques there are available.
We’ve explained what a zero-based budget is here.
Final Step: Keep Track and Plan Next Month’s Budget
Now that you’ve created your budget for the month, you’re free to spend the money on the things you care about. That’s one of the main purposes of budgeting and is always important to remember.
As the month goes by, be sure to keep track of your spending and make sure you’re sticking to your budget. This is where something like an app can help. We recommend one of the best budgeting apps in South Africa, 22seven.
Keeping tabs on how you’re doing with your budget will help you make any tweaks or changes to next month’s budget. You may notice that you’ve overestimated the amount of money you need for something, or you need more money for another thing.
These are good insights to carry over to your next budget as you find the perfect rhythm for managing your finances well.