The simple solution is don’t live above your means i.e. don’t spend more than you earn. BUT how do you know how much you spend? By creating a budget!
The foundation of my budget is a catalogue of expenses, how much I have to put away for each expense, and if I have money left over, anything additional I’d like to save for.
My favourite tool to budget is an Excel spreadsheet but if you’re not keen on computers, a book and pencil works just as well.
Step 1: Catalogue Your Expenses
Gather the last bill for each of your expenses – loans, electricity, car insurance, telephone, Netflix, food, etc. Write or type the heading of the first bill and the amount it cost you. Using a calculator or Excel, divide that amount by how many pay cycles you have between each bill.
For example: You are paid weekly and your mobile phone bill is $40 a month. You will have 4 pay cycles on average to save for the next bill as there are 4 weeks in a month (on average). Therefore divide 40 by 4 and the amount is $10.00.
That amount, is what you will save each pay cycle toward your bill.
Another example: You have an electricity bill due once a quarter costing $400. You are paid weekly and there are 4 weeks in a month and 3 months in a quarter. This totals 12 weeks to save for the next bill. Dividing 400 by 12 equals 33.33 therefore you should save $33.33 each week toward the electricity bill.
It works the same if you are paid monthly or fortnightly. The calculation is slightly different depending on how many times you will be paid before the bill is due.
For a fortnightly pay and a monthly bill, you would have two pays to save for the bill. Therefore, you would divide your bill amount in half and that would be the amount to save each pay.
For each expense write down the title, the total amount due, how often it is due and the due date.
Step 2: Create Your Budget & Total Against Pay Check
Next to the due date, add a column for the amount needed to be put away per pay cycle.
This will depend on the due date of each bill. A bill due yearly would normally have 52 weeks (on average) to be saved for, but if it’s due in June and you’re starting this budget in January, you will have less time to save.
Don’t be overwhelmed though! If you’re starting budgeting from scratch, it can be hard to catch up. You might not be able to save for 52 weeks in four months. However, any amount you can catch up will help and in the end, it will snowball. The amount you saved before the bill was due, has left some money over in the pay that the bill was due, which has allowed you to save more towards something else.
After hard work and a want to save, you’ll have caught up and won’t be living pay check to pay check anymore. You’ll have all the money there already when each bill is due. You’ll say, “Bills?!What bills?” Because paying bills won’t leave you feeling in a pit you can’t dig out of.
I believe in you. You can do this. And teach your kids this. From the get go.
TIP: Ask if you can pay yearly bills monthly or quarterly. This can stop you from getting hit in one go when you’re not prepared. However, if you can, see what discount they offer for a yearly payment. It can be worth it.
I use a free Date Duration Calculator to calculate how many weeks, months, fortnights, or even days and years, until something is due. It lets you enter a start date (the date of your very next pay) and an end date (bill due date).
However, if you don’t have access to the internet you will have to calculate the old-fashioned way or almost! I bet nearly everyone reading this has a calculator. Check your smartphone or the junk drawer in the kitchen.
Type or write how many pay cycles you have to save for each bill. In your next column, add a title “Put Away Per Pay Cycle”. This is where the figure that needs to be saved each cycle will go.
To calculate this, divide the total amount of the bill by how many pay cycles you have to save. Repeat for each bill and you’ll end up with a column of figures. Congratulations, this is your budget.
On the row below all the figures to put away each cycle, total all these up and record this figure. Record your pay check below it and then take the pay check from the total.
If the figure is positive, you have money left over!
If the figure is negative, your pay won’t cover this budget. Time to analyse.
If you get paid the same amount each cycle this would be easy to work out.
If you don’t get paid the same amount, as a guide I’d average your last 6 months’ worth of pays. This is where it gets tricky and without job security it can be hard to estimate, but it is well worth knowing what it costs for you to live.
What if you don’t have enough money to cover bills?
Before you turn to credit cards and loans to get by, you need to think big picture. It’s not fusible to always be owing money just to live. Even if you have a loan or before you take one out, you need to have a plan about how to get back out of debt.
There are two options: make more money or spend less money.
It’s simple and it’s harsh, but it’s honest. You have to be able to live within your means. Hopefully the steps above have helped you realise what your means are, but how do you get below them?
Making More Money
- Ask for a pay rise (more likely to succeed if you have earned it)
- Ask for more shifts
- Find an additional job
- Find a higher paying job
- Turn your hobby into a side hustle
- Sell things you already own to get out of short term debt, but not feasible for long term.
Spend Less Money
This is where I think the game changer is. Most people would have thought about making more money when they have stumbled upon this post, but learning to spend less money can really open up your life.
- Do you really need a TV/Movie streaming service?
- Can you live without alcohol?
- Do you need to wear make-up?
- Can you cook more at home?
- Can you find a less expensive hobby or a way to do that hobby for free?
- Can you outfit yourself at the op shop?
This post isn’t a list of ways to cut down on your expenses, but I wanted to added this section in to have you really start to think about how to cut down on things instead of being depressed if you can’t live within your means.
Don’t follow the Jones! Your real friends will understand if you can’t go out and are probably going through the same thing. Have a board games and pot luck dinner night! Bring your own $6 bottle of wine and skip the $6 glass at the club.
And if by chance you have money left over because of frugality, try to save it. We all deserve a treat (and finding a cheap treat is even better!), however you need to balance that with saving money to eventually get ahead. What if your fridge breaks? You could get a loan, but that would cost more money in interest. Planning ahead and saving ahead for a “rainy day” is the key to financial sustainability.
Step 3: Add in Non-Essential Expenses
If you are lucky enough to make above your cost of living, go ahead and add in extra categories including spending money, holidays, savings and any other things you think you might need or want to save for.
Examples of extra items include:
- Takeaway and/or a night out
- Car expenses (different to insurance & registration, if your car breaks down etc.)
- Trip overseas
- Bathroom Renovation
- Emergency Fund (highly recommend for when the fridge breaks!)
Don’t forgot to include spending for day to day! Saving money isn’t about having no life!
How much money should you add to each category? This is totally up to you and what money you have left over!
If you only have $20 left over from step 1 think about what you most want to spend it on. A good idea could be to give yourself $10 to treat yourself and $10 towards an emergency fund.
If you have more money left over, a good way is to think about how much you want to spend for each extra category and how quickly you’d like to save for it.
For example, my fiancé and I want to get married in 18 months with a $10,000 budget. He is paid weekly and I fortnightly. This can make things slightly more complicated, but I use weekly for my sums and just times by two for my pay check.
There are 78 weeks in 18 months, therefore divide $10,000 by 78 equals $128.21.
If we want to meet our deadline this is the minimum amount per week we need to save. To split things evenly between each of our pay checks, Daniel would need to save $64.11 as he is paid weekly. However, because I am paid fortnightly, I would need to save $128.21 out of my full pay check.
Repeat this for whatever you are wanting to save for. It gives you a clear view of your finances and just how hard it can be to save for certain things. It will realign your priorities.
Download my Spreadsheet
If you don’t want to create your own spreadsheet you can download mine for FREE if you subscribe to my blog.
I hope this post has helped you. Creating a budget is something I am very passionate about and wish I could encourage everyone to have if they don’t already. You shouldn’t have to say it was rough because your car registration was due that month. You should have the money there already.
How do you budget? Let me know in the comments below!