How to Budget: 7 simple steps Creating a successful Household budget

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How to Budget - 7 steps guide

One of the best ways to take control of your money and plan for your financial future is to work out a budget.

Every great financial plan starts with a sound budget.

Following these simple steps how to budget is a step toward making your financial goals a reality.

A budget also gives you a visible overview of your income vs expenses. And if you’re paying off debt and saving for your dream holiday, a budget is the best start.

Here’s how to make your first budget

1. Collect every financial statement

Collect as many financial statements during the last 12 months as possible. Finding a monthly average is one of the key’s for a robust and accurate budget prognosis 

2. Record your total income

How much money do you make per month?

If you have a regular income and PAYE is automatically applied, then use your net income or take-home pay, after income-tax, KiwiSaver and ACC.

3. Calculate expenses

The first thing is getting an overview of all your spending and expenses.

Start by going through all your bank statements preferably during a 12 month period. 

Some expenses occur every 3 or 6 months, and some yearly.

Calculate the total monthly expenses and add up your total annual outgoings divided by 12 months.

This way you will get the most detailed and exact breakdown of your monthly spending and by monthly average as well.

4. Breakdown weekly/monthly expenses

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5. Divide expenses into fixed and variable categories

It is important to breakdown expenses into two categories: fixed and variable expenses.

Fixed expenses include your

  • mortgage or rent,
  • electricity or gas,
  • car repayments,
  • broadband/mobile phone subscription,
  • rubbish collection,
  • insurance and so on.

These expenses, for the most part, are essential yet not likely to change in the budget.

Variable expenses include

  • groceries,
  • fuel,
  • cloths,
  • gifts,
  • eating out and so on.

Keep an eye on this category when making budget adjustments.

6. Review expenses and measure progress

The famous saying by W. Edwards Deming, statistician and management consultant, is “What gets measured, gets done.”

Such it is also with budgets.

Once you’ve carefully followed the above steps in breaking down your expenses into fixed and variable spending and identified your income, it’s time to review the budget.

Because budgets must be in balance. You can cut spending or go into more debt.

If expenses are higher than income, you should look at your variable expenses to find areas to save. 
Cutting some variable expenses should be easier than cutting fixed expenses.

7. Best Budgeting Apps for Kiwi's

PocketSmith is New Zealand-made budgeting software available for both iOS Apple devices (download at the App Store) and Android (download at Google Play).

You can break down your home budget into the most useful time-spans for you: daily, weekly or monthly.

Probably one of the features I am most impressed with is the Live Bank Feeds feature which feeds your PocketSmith account directly from ANZ, Westpac, ASB, Kiwibank, BNZ, TSB Bank, Sovereign, NZHL, along with 12 other banks in New Zealand.

As of 30 March 2020, PocketSmith offers 3 pricing plans.

What is a budget?

A budget is an estimate of all income and all expenses during a set time typically 12 months.

A budget is the best and easiest way to create the life you want for tomorrow, and money goals get you there.

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