After a great recap on why you should budget, Ben, our client support officer at Debt Cutter and an expert budgeter, has shared with us his three simple steps to developing a budget and how important that budget is to reduce debt.

3 steps to budgeting

Breaking down money management into 3 simple steps will get you budgeting faster.

1. Determine your income.

Make a list of all your sources of income and how often they are received.

Question yourself, is this the best I can do?  One side of the equation is budgeting for expenses. The other side you need to think about is your income.  In order to have a complete budget you have to factor in the income and the expenses. Think about it –if you only budget for the expenses you are already at a loss.  Never thought about it that way before have you? So figure out how much income you want or need to earn per month and then multiply it by twelve to determine the total for the year. I also suggest adding 5% –10% cushion to cover unexpected expenses that may not be accounted for.  Now to brainstorm how you can reach your income goals.

2. List ALL of your monthly expenses.

There are so many costs built into a budget. And often times people budget for the big items but not the little incidentals. And it is those little items that can cause you to blow your budget. So don’t forget about the little expenses, such as office supplies, internet fees, and even parking. List them ALL by month and then multiply those figures by twelve to determine your total spend for the year. Now if you notice that this total is close to or higher than your incomes then you need to do one of two things:

a. Revisit step one and update your income or find more ways to gain income or

b. Go through your expenses and make sure all of the costs are reasonable. You may need to push some items to succeeding years or find new vendors with lower costs.

Most people struggle with their finances because they are unaware that they are spending more than they earn.  Recognising this is the first step in solving the problem.  If doing a. and b. above doesn’t resolve it, then you need to consider seeking further help.

3. Track it.

Whether you maintain this budget within your accounting package or in an excel spreadsheet, it doesn’t matter just track it somewhere. Don’t create a budget and then try to manage it in your head. It won’t work. You can’t remember it all. Input your actual figures monthly, fortnightly or weekly, depending on how regularly you are paid, and compare your actual figures against your budget. This will help you monitor your spending and better manage your cash flow. It’s a simple process that can take as little as five minutes. This process will help you keep a handle on not just the items budgeted but also those incidental items that you didn’t budget for. Again, these expenses are what can blow your entire plan and if you don’t know they are there you can’t take a recourse action.

To get you started with your budget we have a simple budget template you can download in our Advice Centre or head to the Government’s Money Smart site for an excellent free budget tracking tool.

Breaking down budget planning to achieve your debt reduction goals can also reduce the stress surrounding your finances. If you’ve never budgeted before and want to make small steps towards financial freedom then Ben’s advice is perfect.


dc headerIf you’re struggling with your debt we are here to talk about a solution.

Call us on 1300 887 211 or Book a Free No Obligation Phone Consultation with our friendly team and we can discuss debt management options specially focused on your personal situation.