With the new financial year underway, this is an excellent time to get your finances in order. That then calls for a re look at your budget so that you can make the best money investments. Below are six steps you should take now so that you set yourself on the right financial paths in the coming financial year.
Look At The Income Streams
For you to adequately budget your money, you need to know its sources. You should be aware of the different cash-minting avenues that fatten your bank account. The idea is to review them be it a side hustle income or an after-tax income. With such information, you can come up with a solid budget.
If you are not sure of where to start, then begin with combing through your bank account deposits, or the old payslips. Eventually, you will identify the income streams and know how much you earn per month. You will be able to come up with a budget that focuses on your spending less than you make since you know the much you bring in every month.
Review Your Expenses
To budget effectively, you need to show your money that you are the boss. That you are the one to say where it should go, when, and how much; you, therefore, should have a firm idea of the money that goes out of your bank account every month. That means you should know your current and recurrent expenditures.
Some of the standard expenses include rent, utility bills, mortgage, insurance, groceries, mobile phone services, petrol, travel, and entertainment. Take a step back and reassess your expenditure over the last three months as you review your bank account. It will help you know your average spending for each month.
Monitor Your Credit
If you have plans for making a significant investment such as buying a car or a new home in the coming financial year, then you also should take into account your credit score when preparing your budget. If the purchase is only possible via a loan, then your credit score will be a significant factor that will determine if you are approved for a loan, and even influences the interest rate that you will pay.
Understanding and knowing your credit score can help you know where you stand if you do need to get a loan at any time. Checking your credit score does not impact it, and you can get the information you need at no extra charges.
Evaluate Your Needs Vs. Wants
Some people find it hard differentiating between their needs and wants. A need is something that you cannot do without, and a want is what you may do without. Knowing these things will be pivotal when determining your expenses so that you can budget your income. Keep in mind that you should strive to spend less than you earn so that you can be able to repay your debts and have something you can throw into your savings.
If you are finding it hard to save money when you look at your expenses and those outstanding debts, then you should reassess your needs and wants. For instance, your rent or mortgage is a need. You cannot do without a place to live. Eating out or going clubbing may be fun but not meaningful; thus, you can do without.
Try identifying why you have such strong urges to buy things that you do not necessarily need. Life coach and psychotherapy specialist, Wendy Corliss from Living Consciously, has found that “many people find that they make many unnecessary purchases based on emotional impulses and to satisfy a need that comes from deeper issues elsewhere in our lives, such as that chocolate cake you bought after a bad day at work. Identifying when we are making unnecessary purchases to satisfy our emotional needs, we can change our behaviour and find healthier coping mechanisms.”
In short, you should take another look at your expenditure and accordingly mark your expenses as a need or want. You can even rate them under their respective categories so that you know which to prioritise the most and which you can ditch.
Plan For The Unexpected
You may think that you have the perfect budget for the coming financial year; however, that may not be the case if it does not account for the unexpected. Tracking your monthly spending may be easy, but the same cannot be said of those irregular, one-time expenses. For instance, if your car breaks down and you need to come up with extra money to pay for repairs.
In short, it is hard to predict every detail of life. Perhaps you may get that dream job and see the need to refresh your wardrobe before you start working. Your budget should have a bit of wiggle room for such unexpected occurrences. You can categorise such things under “miscellaneous” expenses since they are not predictable or definable.
Use A System That Works For You
After covering the five steps mentioned above, you now can put your budget to the test. Make a list of what you need and want as well as the miscellaneous and allocate them some money. The overall budget amount should not be more than your income. Otherwise, you will create a debt.
Once you have every dollar accounted for, you now have a foundation for managing your finances in the new year. But you should not stop there. Keep track of your expenditure, making sure you never stray from your budget. You can take the traditional route of pen and paper to track your spending. Alternatively, you can up the game and make things easier for yourself by using budgeting apps. Keep in mind that there is no specific way of monitoring your budget that can be said to be the “right” one. What works is what you find useful to you, and you use consistently.
Your budget should not be a fixed plan. It instead should be something that helps you have a firm grip on your money, still making some adjustments to the budget or your spending, so that you can manage your finances better to support your needs and lifestyle.
What next? Now that you have some tips to help you manage your finances, you can work towards some larger long term goals, such as saving towards a home deposit.
Jack Poole is an Australian writer and business student living in Sydney. He is extensively knowledgeable in financial-related topics. Jack has a passion for the arts. When he’s not studying or writing, you’ll find him frequenting the art museum.
Disclaimer: This article provides general information only and may not reflect the publisher’s opinion. None of the authors, the publisher or their employees are liable for any inaccuracies, errors or omissions in the publication or any change to information in the publication. This publication or any part of it may be reproduced only with the publisher’s prior permission. It was prepared without taking into account your objectives, financial situation or needs. Please consult your financial adviser, broker or accountant before acting on information in this publication.