Smart Money Mindset

Simplifying the way you manage your finances can make sticking to a budget much easier. Limiting the amount of time it takes to actually manage your budget will make it more likely that you will do it. With the right technique it should only take you 20-30 minutes a week to stay on track.

The most time-consuming part of the process is the actual setting up of the budget. So don’t try to do this with a house full of kids and other relatives over the holidays. Allocate the time and place, and stick to it. If necessary put a “Do not disturb” sign on your door, turn off your phone, and disconnect from the internet (eliminate distractions!).

While there is a plethora of software to simplify the preparation of a budget, a simple spreadsheet is all you need. Don’t complicate the process by having to learn a new program.

A good way to start is to assemble any bills and receipts you can get your hands on. A credit card statement is perfect if you charge most of your purchases. Begin your document by listing your monthly income and expenses. Estimate, in round numbers, what you spend on each expense every month. You don’t need to be precise, but err on the side of more rather than less with expenses.

Be sure to include:

* Mortgage/rent payments
* Utilities costs (electricity, gas, phone, water etc)
* Groceries
* Food
* Transport
* Car expenses
* Clothing
* Education expenses
* Entertainment
* Gifts

A Simple Budget – The 60% Solution

One of the simplest types of budget is called the “60 Percent Solution”. In essence, this budget aims for you to fit your monthly expenses within 60% of your gross income.

This will allow you flexibility for long and short term savings, spending money and retirement planning. These can be what often break a budget, because people fail to budget for them.

While the percentages will vary depending on your circumstances, consider the guidelines below:

Allocation of Income

60% – Monthly expenses
Housing, clothing, food, transportation, utilities, insurance, communication.

10% – Retirement
In some countries this forms part of a compulsory superannuation plan, but if it doesn’t for you, you should have this deducted automatically from your paycheck.

10% – Debt reduction or long term savings
A good financial adviser will recommend how to invest this money, which will also serve as an emergency fund.

10% – Short term savings
These are the funds set aside for those every now and then expenses: birthday and Christmas gifts, car maintenance or repairs, uninsured medical expenses, appliances, home maintenance.

10% – Pleasure
This will include recreation, eating out, movies or whatever you want, without the worry of breaking your budget.

Having a household budget with fewer categories will make it much more manageable and help you to realise your financial goals.