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How to establish a budget

By Louise Chan · December 10 2019
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How to establish a budget

By Louise Chan
December 10 2019
Reading:
egg
egg
egg
establishing budget

How to establish a budget

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By Louise Chan · December 10 2019
Reading:
egg
egg
egg
establishing budget

Learning how to keep your expenses within a set budget can help you save more money. But while  budgeting is a necessary skill to achieve financial independence, it’s typically self-taught.

Budgeting is simple, and so is establishing one, but it requires a lot of self-control to actually execute and maintain a budget plan regardless of your income level. 

Here’s what you need to learn about establishing a budget.

Create a personalised budget

Creating a budget plan will help you understand how likely you are to reach a goal and allow you to draw up a reasonable savings strategy.

Imitating a generic budget or someone else’s budget plan can be helpful to some extent, but since we all have different circumstances, it’s best to personalise your budget. To do this, consider the following steps:

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Determine your income
List down all your sources of income that you can use, such as your salary and investment returns outside super. This step is necessary even if you have an irregular income because creating a budget plan based on your income is supposed to help you manage a decent lifestyle.

If you have an irregular income, you still need to list down how much you can usually expect without including one-time or conditional windfalls, such as commissions and bonuses for reaching quotas.

From this, take out your taxes and voluntary super contributions, if any, to reach your net income.

Track your spending
Once you’ve determined your net income, list down all your expenses and categorise them according to how necessary they are to maintain a decent lifestyle.

Take note of recurring expenses, especially those that are non-negotiable, such as utility bills, groceries and other living expenses. Consider opening a separate bank account that is set up to automatically pay for these fixed expenses.

Evaluate your other expenses and decide whether you can limit some of the recurring but non-essential expenses. You may also review your bank statements to check your transactions from month to month, as well as any unexpected expenses you may have encountered.

You may start tracking your monthly expenses in a notebook, spreadsheet or budget calculator application. Likewise, there are free mobile applications that does the job both for iOS and Android devices.

Tighten your budget
Go over the list a couple of times to pin down every possible expense, and once everything is written down, pinpoint unnecessary expenses, flag them for removal and tighten your budget for the recurring ones. The latter may be done by monitoring and reducing consumption to lower the bills. Switching to a lower-cost provider is also a good alternative.

Once you’ve adjusted your spending for your living expenses, you may top up your payment for any debt you may have, such as your student loan, if you have one.

Likewise, you may stash the extra money in your savings account.

Save money

Be strict about keeping expenses below your income: live within your means in order to free up enough money to save. 

A good strategy is to limit spending to a weekly or daily allowance that already takes transportation and other necessary costs into consideration.

Likewise, paying off your debts, such as your student loan, earlier can help you increase your budget for other needs faster.

Your budget can only be effective and consistent when your debts are paid because you’ll no longer have to worry about ballooning interest payments.

Explore nestegg for more budgeting and saving ideas.

How to establish a budget
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About the author

Louise is a content producer for Momentum Media’s nestegg who likes keeping up-to-date with all the ways people can work towards financial stability in 2019. She also enjoys turning complex information into easy-to-digest, practical tips to help those who want to achieve financial independence.

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We Translate Complicated Financial Jargon Into Easy-To-Understand Information For Australians

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About the author

Louise is a content producer for Momentum Media’s nestegg who likes keeping up-to-date with all the ways people can work towards financial stability in 2019. She also enjoys turning complex information into easy-to-digest, practical tips to help those who want to achieve financial independence.

Join The Nest Egg community

We Translate Complicated Financial Jargon Into Easy-To-Understand Information For Australians

Your email address will be shared with nestegg and subject to our Privacy Policy

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