Ok, so you realize that you have some poor planning skills when it comes to organizing your spending.
You look to create a budget but you just don’t know where or how to start…
This is where most people fall short and give up on creating a budget. Don’t worry, it’s not that hard. But you have to set some time aside – 30min to put this together.
When creating a budget, you need to make sure you’re creating it to match your pay cycles. Do not create it based on expenses like when you need to pay rent.
To simplify it, we’ve put together a list of steps for you to take to create your budget as fast as possible to get your spending organised
Scan your past 3 months of spending
Here you need to get a print out of your past 3 months from your bank account. Visit your internet banking to get this. Most Banks offer you the ability to download your past statements.
Categorize your spending
Go through all transactions and categorize them into a category it belongs to. These categories will form the expenses section of your budget. It’s important to categorise your transactions so you get to know logically how you spend your money and what you spend most of it on. Here are some of the categories we use in the Cheq app to create budgets for our users:
Calculate how much you spend
Ok, so far you have categorized all your transactions for the past 3 months. For this step, you take your past 3 months of categorised transactions and you sum up how much you spent on each category. You calculate the amount for each pay cycle to see how much you spent on each category. Here you will see how much you spend on each category such as groceries, entertainment, or takeout.
Set your optimal budget
So after calculating how much you spend on each category, how do you determine what the best amount to set for each one as your budget going forward? The best thing to do is to start with an average. Find the average amount you spend on each category and set it as your budget. If you find that you spend on average $300 on groceries, set your budget to that amount.
Here’s the thing, you’ll probably notice that for some expenses it differs a lot. Sometimes you’ll go out on the weekend and spend more on entertainment but other times you will stay in and not spend much. The best thing to do is to exclude all the low amounts of spending on a category and only include the logical amounts to include in your calculations. For example, if you notice that most weeks you spend $250 – $300 on groceries but in some weeks its $50 because your flatmate or partner made the purchase, then exclude that $50 from your calculation to find the average.
Track and adjust
There’s no point in creating this budget if you don’t track it and make sure you follow it. The best way to do this is to look at it at the beginning of each day to see what you can spend for that day. The budget will need to be adjusted as you get better with your spending. Challenge yourself to budget lower than what you usually spend so you can save more.