Liz Parnell

Home Articles Budgeting, Economics and Finance A Novice's Guide To Budgeting - Part One
A Novice's Guide To Budgeting - Part One PDF Print E-mail
Friday, 15 February 2008 07:52
A Novice's Guide to Budgeting - Part One

I've written this in response to the many people who have said to me that they don't know how to budget, and especially how to start.

Step One: Find out how much you earn. Gather up all the bank statements, for all your accounts, for the last twelve months. Make a note, on a piece of paper or in a spreadsheet document on your computer, of the deposits that went in. Write down your regular pay amount and how often that goes in. Write down any pensions or government allowances that you get and how often they come in. Then write down any "one off" sort of payments you got in the past twelve months (annual bonuses, tax returns, gifts etc) and work out how much money you have earned in the past year.

Step Two: Find out how much your assets are worth While this is not an absolutely essential part of a budget, it can be helpful for you to gain perspective during the process.

Write down a list of all the assets you have, and write down their approximate value. The more accurate you can be, the better. Include your home, any investments (shares, properties etc), vehicles, land, farming equipment, livestock, an approximate value for your household goods, jewellery etc. If you can get professional valuations, find out the replacement value as well as the "resale" value. Search online for vehicles similar to your that are being sold, look for properties in the area that are being sold or get a market appraisal from a real estate agent (and take off 10-20% ;)).

Now add them up and see how much you own.

Step Three: Find out how much you owe

Now, write a list of all your liabilities and loans. Include home loans, investment loans, car loans, personal loans, people you owe money to, rent-to-buy agreements (not rental house expenses though) and "no interest until 2011"-type agreements. If you can, get a "pay out" figure for all of those loans, if you were to pay them out today, as well as their current balance.

Add them all up, but try not to fret too much!

Next week we'll be collecting all the other figures you need to create your budget.