How to save money by creating a budget

holiday budget bookkeeping

 

So many people ask me, "James, how can I make more money!?". This question is of obvious importance. Of course, who doesn’t want to make more money?? However, too often people forget the value of saving their money. Saving, and effectively creating a budget, is more important than worrying about earning those few extra bucks. So if you really want to move forward, first you need to take what you have, and use it wisely.

Create a budget. It’s the most powerful tool you have in the world of keeping what’s yours. Many people will say, “Yeah, I had a budget, but it didn’t work”. Well that’s probably because you aren’t using it properly. An effective budget should be structured in a way that is both achievable, and ambitious. If you just write all your general costs down, don’t pre plan, and be a bit splurgy with your spending, it’s not going to do you any good. Here’s my strategy for putting together a solid (and achievable) budget.

Firstly. Have a goal. Work out why you are doing this in the first place. Saving for something special? Trying to get yourself out of debt? Or just wanting to improve your financial position? These are all important, as you need a goal in mind if you’re going to go through with cutting spending.

Second. Work out your true income. This one’s pretty easy, just look at how much money you’re physically getting paid into your bank account from your work, or trading activities. Forget about tax for now, that just complicates things unnecessarily.

Third. Calculate your TOTAL yearly expenses. Now this is where it gets a little bit more tricky. You’ll need to work out all your costs, both for business, pleasure and the necessities. Then, you’ll need to work out how much these cost you in a year. For example, council quarterly rates, times by 4. Monthly phone bill, times by 12. Do this for ALL expenses. Some you’ll need to have a guesstimate at the absolute MINIMUM you can spend. An ideal example category for this is “Entertainment”. Weekly entertainment is a killer cost to most of us, so try aim for a small target to maximise your savings.

Ok, so now that you’ve worked out your yearly income and costs, you’ve got a broad picture on how much you should be able to save in the year. Yes, that number might surprise you (provided you were being a bit tight in the hip pocket with the pleasure items).

Forth. Calculate weekly spend limits. Divide each category (now organised into yearly amounts) by 52, to work out your weekly spend limits for each item.

And Wallah! Now you have a weekly budget designed to save money.

Obviously this method relies on your judgement and also your self control when it comes to spending habits. The key is to see how much you COULD save, and then try hard to make it a reality. We literally waste so much money on things we don’t need because we lack a savings goal.

Remember the old saying, a dollar saved is worth two earned. It couldn’t be more true.

James Webb

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