Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery.
Charles Dickens – David Copperfield.
Why do I need to have a budget?
From many conversations that I have with people across the UAE, emails I receive and messages whilst on air at Dubai Eye it seems that many people really need to address the issue of how to manage their personal budgets. Does your money run out before the end of the month?
If you need a little help, then read on.
Quite simply, if you don’t know what your outgoings are, how do you know if you are overspending? How do you know how much you are free to spend each month?
Building up a costly overdraft or running up credit card debts because you cannot make ends meet is not a healthy way to live. Once you have organised a budget you know exactly where you stand from a financial perspective and can relax in the knowledge that you are living within your means.
What are the steps to go through?
- Calculate household income – after tax if payable
- Deduct rent or mortgage payments
- Deduct loan and credit card payments repayments
- Gather together bills to establish average monthly payments including food bills
- Separate monthly payments into fixed or variable so you can make adjustments
- Make an allowance for annual expenses, such as motor insurance, medical cover, gifts
- Calculate income left after all expenses
Once you have a net figure you can then allocate monies for savings and investments and ‘fun’ money. Ideally you need to run a budget for a few months to take into account variables and anything that has been missed. It will need to be tweaked a few times to make sure that it works for you.
There are various programmes that you can download if you are the sort of person who likes to use spreadsheets, but I don’t think it is necessary and you can do it on a sheet of paper. It doesn’t really matter how you do it as long as you take control and manage your money.
If you find it hard to keep tabs of what you are spending, you could give yourself a weekly allowance. Once you know how much you can spend, after fixed and essential expenses and savings, you should know roughly how much you can spend each week. Withdraw that amount in cash at the start of the week, don’t use any credit or debit cards, and make that cash last. Once you know that’s all you have and you have the notes and coins in your hands, you’ll think twice about buying unnecessary items.
If you need to cut back on expenditure consider things like reducing the number of take away coffee or drinks you buy; bring your own lunch to work a few times a week; try cheaper brands at the supermarket and locally grown vegetables at lower prices; compare prices at supermarkets as they can vary considerably; use loyalty and discount cards when shopping.
What else should I do?
Build up some cash savings so you can meet any unexpected bills without ruining your budget. If there is leeway to repay debts faster that is always a good idea. Another good plan is to set aside a little money every month to cover extra expenses such as holidays and birthdays.
Admittedly this is not an exciting thing to do, but it is worth spending a couple of hours each month checking your expenditure. That way you won’t run out of cash before the end of the month and will avoid worrying about paying bills.
Work is a reality for most of us, but establishing a proper budget allows you to enjoy yourself in the knowledge that you can actually afford to do so. Make sure that you manage your money; don’t let it manage you.