Budgeting

(This guest-post is written by Bethany.  Thank you Bethy! :)

Budgeting - some people have a good relationship with it, others not so good. I, myself, have a bit of a love/hate thing going on.

I've always grown up hearing about the importance of budgeting, I know and understand and value the importance on budgeting, I know how to budget and the principles involved etc, but still I've managed to let a budget run away from me while I'm left desperately trying to chase it.

So I guess this post is just sharing a little bit about how to budget, and why it's so important from the perspective of someone who has seen both the light and the dark side :)

How to/Basic Principles:

This is how I make my budget:
- Add up all of your income. Any money you receive from work or parenting payments or anything.

- I draw up a table (a lot of people use excel spreadsheets but I like to use a pen and paper) and list all of my bills starting with the most important or 'set in stone' ones. So for me, tithing always comes first (in our church we pay tithing which is an offering we make) followed by rent, car repayments, electricity, internet etc.

- Then I list the expenses such as petrol or mobile phones or car emergency money. You have to list any expenses you might have for the year: car insurance, car registration, birthday presents, Christmas, school fees etc. Everything.

- Then I allocate all of the money needed for each of these. Obviously I know how much rent is each week, and for things like electricity, I estimate how much I think my quarterly bill might be (also exaggerate it) and then divide that by the 12-13 weeks in each quarter to calculate how much I need to set aside each week.

- Sometimes you have to rework how much you pay for things. For example, maybe it's wise to shop around for a cheaper internet plan, or we just have to figure out a way to use less petrol, or birthdays have to be made much simpler.

- After all my bills and expenses have been allocated, I see how much money I have left over and that's my food allowance each week/fortnight.

- Obviously it's good to have savings. I like to allocate money to a savings fund, but depending on what kind of income you have at the time tends to dictate whether you have anything left over for savings. Sometimes it comes right down to the last dollar and unfortunately, savings have to wait.



A couple of Rules

1. Every dollar of your income should be allocated to some category. That means if you have money left over after budgeting, it should go into savings (or somewhere). If we don't allocate our money to some sort of category, it disappears into the 'meaningless spending' void!  Ahh, that void knows me too well....

2. My mother always told me "If you always spend $1 more than you earn each week, you'll always be in trouble. If you spend $1 less than you earn, then you'll always be ok".  And it's so true!

Your outgoings must never exceed your income.

3. Avoid debt like the plague! We're told time and time again that we should never go into debt for anything except a home, education and if need be, a car. I hate that we have a car repayment, it's such a pain :S.   If we want something, we should save up for it to buy it. Credit cards are evil! lol

4. Stick to your budget!

Personal Experience

Take it from me, it's sooo not fun to be behind on your budget or your bills! I always paid my bills on time, in full as soon as I received them. I had the money set aside so it wouldn't be a problem. Occasionally, I had to borrow some money out of another 'fund' but it all worked out because I would take it from something like 'Petrol' because that wasn't a bill and I could always work around it or maybe even had excess money set aside for petrol that I hadn't used. That was only if my bill ended up being much more than I had anticipated (darn electricity rate increases!).

Anyway, around Christmas time my husband and I got a little bit extravagant and spent waaay more than we should have! I don't know what came over me. I just wanted to make it nice for him and he wanted to do the same for me, but I guess neither of us knew what the other was doing either! 

I mean, yes, we had a lovely Christmas! But ever since Christmas, we've been behind. Suddenly we had bills but our reserve money to pay them was no longer there! Also, our car registration was up and I don't know how or why I was this silly but I had COMPLETELY forgotten to put it in the budget! Totally accounted for car insurance etc but registration slipped my mind completely. Wow, major blunder.

So I had a $550 electricity bill and $800 car registration and was trying to pay them while keeping up with the weekly rent and car payments and smaller bills.  It was a horrible, horrible feeling. For the first time ever I couldn't pay a bill on time and in full. I had to call the electricity company and ask for more time. I was so embarrassed and just kept apologising profusely (they were super nice and said that they could see I was normally very good so stop stressing). 

I know that compared to other people our situation was not dire. We're extremely blessed to have an income and nice home and a car and everything we need. It was just horrible especially because I knew it was completely brought about by our own actions and lack of budgeting. 

I'm happy to say that we've been super blessed and even though we were silly to get into that mess, we're back on track now. Yay! Woohoo! Good feelings :)

So yes, budgeting is important! :) Oh, and actually STICKING to your budget is important!! :)

Debt Snowball

I don't really have any debts except for a car repayment, but if I did have multiple debts I would definitely use this!  It's a method called the Debt Snowball method. I won't go into too much detail and if you want to read up on it there's lots of information.

In a nutshell, you make a table of all your debts starting from smallest to largest. You pay the minimum amount on each debt, but with any money left over from your income, you add all of that onto your smallest debt.

So say your smallest debt was a minimum payment of $40 a week, and you have $150 left over in your budget. Then you pay $190 on that debt until it is paid off completely.  Once that's paid off, you move onto your next smallest debt and add what you've previously been paying. So if your next debt was $60 a week, you'd pay that plus the $190 and you'd be paying $250 a week.

This way, you work through your debts super quickly and you get to completely eliminate a lot of them! Even if $5 is all that's left in the budget, that's $5 more than you'd otherwise be paying and $5 a week or fortnight can definitely had up over time :)

The below picture follows the same principle and is from lds.org and there are a lot of resources on this church website to help with managing finances.

Happy Budgeting! :)