Articles Budgeting, Economics and Finance A Novice's Guide To Budgeting - Part Three
| A Novice's Guide To Budgeting - Part Three |
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| Friday, 29 February 2008 07:55 | |
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In week one we found out what we earnt, how much we were worth and how much we owed. In week two we found out what we'd promised, what fixed expenses we have and what other regular expenses we had. This guide follows on from parts one and two. Step Seven: Find out what else you spend your money on Have a good look at any bank statements, credit card statements, receipts and bills you can find from the last year. Write down all the things you spent money on that didn't fit into above categories, and how much they cost. This would include gifts, meals, haircuts, books, holidays, cds, entertainment, magazines and a whole pile of other things based on what your life is like. Add up what you have spent in the last year on these items. Don't forget to include things you paid cash for – have a good guess at how much those things cost, if you don't have receipts and can't remember. If you haven't got very good records of this, track your expenses (every cent) for the next week to see where all your money goes. Every coffee you buy, toll you pay; write it down. Every time you pay a bill, buy a loaf of bread or fill the car with petrol; write it down. The longer you do this for, the better idea you will get of where your money goes. Step Eight: Set up a good spreadsheet You don't need a computer for this step, although it makes it an awful lot easier. You will eventually find your own way with the budget, but to start I suggest you use this method of calculating expenses. I have four main columns in my budget spreadsheet. I have a text column that s the label of the expense, some examples: Groceries, Petrol, Health Insurance. The second column is the amount you actually pay. The third column I call frequency. This is where I write how often I pay the expense in question, ie the frequency of a weekly expense would be 52 (or 53 if that day of the week is the first of the year), a monthly expense would have a frequency of 12 etc. The fourth column I multiply the frequency and amount together to get a yearly value. You might be quite surprised how much that latte or pack of cigarettes a day is actually costing you over the year! You can program spreadsheets to do this calculation for you. There are two ways to do this. The first is to simply enter the numbers into the equation yourself. You would type =sum(12.50*52) for a weekly bus fare that cost $12.50. Once you hit enter, the cell will now display the yearly amount for that expense. The other way is more efficient but more complicated to explain and set up. Each cell in the spreadsheet has a “name”. The columns across usually have a letter designation (a, b, c and so on) and the rows down usually have a numerical designation (1,2,3 and so on). If your label is in column A, your amount in column B and your frequency in column C, the equation would look something like this: =sum(B3*C3). You can then “copy” this cell (highlight and then right click) and then paste it down the column (click on the letter label at the top of the column so it is highlighted and then right click and select paste) and then from now on your columns should display the yearly total once you input figures into the cells for other expenses. If all this is too complicated, use the previous method or just punch the figures into a calculator. The benefit of programming the spreadsheet to do it for you is you only need to change one figure (say, how much you spend on groceries each week) and all your figures (yearly expenditure, total expenses etc) will automatically update for you, to reflect this change. Step Nine: Punch in the numbers Now is the easy, but scary part, putting in the expenses, and figures in your spreadsheet. This is a time consuming but easy step in the process. As you go, you may want to organise your income and expenses into categories. You could organise them according to how flexible the figure is (from inflexible to items you could easily eliminate if necessary) or according to area, such as car, home, food, medical or whatever suits your situation and preference. Next week, we'll be doing the fun part of budgeting, in our final installment in the series. |
