How to budget for essential expenses as the year ends

If you want to take control of your finances as the year comes to a close, budgeting is the best tool you can use. There are a lot of ways that you can create a budget and even more ways you can use it to plan your financial future.

There are a lot of reasons people choose to start budgeting but one of the common instigators is a new expense, like a bad credit car loan, or something you’ve been saving for, like a home furnishing upgrade. Whatever the reason, here is how you can create a budget for essential expenses.

Creating a budget

A budget is a tool you can use to track your finances. The basic concept of a budget is simply your monthly income minus your monthly expenses.

When you create a budget, make sure to include as much information as possible. This will mean including all your sources of income, even the money you earn from side hustles or sources outside of your wages (such as any Centrelink payments). This information will also come in handy if you opt to apply for a second chance loan with Ume Loans. As part of our process, we discuss your income and expenses to deem your eligibility to repay a loan. It’s a good idea to have these figures available when applying for a loan through us.

Likewise, add all of your expenses for the month into your budget. It can be helpful at this stage to categorise your expenses. Some categories could include groceries, bills, entertainment, eating out, luxuries or any other regular expense you have.

It can often be helpful to do this for several months to get a better idea of how you spend. You can do this either by going through your bank and credit card statements for the past 90 days or by taking note of income and outgoings for the next few months.

Tracking your expenses is a great way to work out where your money goes and you’ll quickly begin to see your spending habits. Even without a plan for the future, knowing exactly where and how you spend your money often changes people’s behaviours for the better.

Using your budget to create a plan

Once you have a budget and understand your finances, you can start taking control of your future by planning.

Set a goal 

While it’s not entirely necessary, it’s easier to stick to a plan if you have a goal in mind.

Start by asking yourself why you want to control your finances. You may want to pay off debts, build an emergency fund or save up for something special. Setting a specific goal can give you the motivation to stick to your plan.

Some examples of a defined goal are:

• Grow my savings by 30% 
• Pay off my credit card debt of $3,000 
• Have an emergency fund that covers threes months of living expenses 

Identify your essentials 

To find out where you can save money, you’ll want to go through your expenses and determine which are essential.

Some of these will be obvious, like rent or mortgage, but others can be a little harder to identify. A common way to think about your essentials is the things you can’t live without.

Some examples of essential expenses are:

• Rent or mortgage
• Debt repayments
• Groceries 
• Bills 
• Petrol, car servicing and registration

It’s important to be firm on these, it may feel like that first cup of coffee in the morning is essential but if you really needed to you could probably live without it. These are generally fixed costs that can’t be changed too much, while your non-essential spending has more room for manoeuvre.

If it helps, keep in mind that just because something isn’t essential, doesn’t mean that you have to cut it out of your life.

Many people think of it in terms of needs and wants. Your essentials are needs while everything else is a want.

Budgeting for new expenses

If the expense you’re budgeting for isn’t one that you’re already paying for, the first step is to work out how much you will be paying per month.

Luckily, you already know that it will be an essential expense so you can put it straight into that category.

With this new figure in your budget, you’ll be able to see if you can afford it with your current income or if you’ll need to make some changes somewhere.

How to work essentials into your budget plan

Now that you have your financial goal and know which of your expenses are essential and which aren’t, you can start working on your budget plan.

There are many different budget plans you can use and finding one that suits you is just a matter of choosing.

Pay-yourself-first – This is possibly one of the simplest budget plans and it focuses on saving money or paying off debt. All you need to do is chose either an amount or a percentage of your monthly income that you want to set aside for your goal. Whenever your pay comes in, immediately put that money into your savings or debt, and whatever is left over you can put towards other expenses.

50/30/20 budget – The 50/30/20 budget, or percentage-based budgeting, assigns simple percentages to portions of your income. The numbers mean 50% of your monthly income should go to needs, 30% to wants and 20% to savings or debt repayments. Though this is the recommended arrangement, you can split the percentages however you want or even add different categories.

Envelope budgeting – Similar to percentage budgeting, envelope budgeting breaks your expenses into different categories such as bills, entertainment, debt repayments and groceries. Take out cash each month and fill envelopes for each category with the amount that you decide should be taken by it. If the money in the envelope runs out, you cannot spend any more on that category for the month.

Zero-based budgeting – Zero-based budgeting is best for people with a regular and steady income. With a zero-based budgeting system, every cent of your income should be allocated so that there is no money unaccounted for. This is the most intensive method and will require you to track every expense and stick to it.

Sticking to your budget

The final step in sticking to your new plan is to reward yourself. This doesn’t have to be anything huge, but small rewards along the way can help to keep you motivated as you save.

What motivates you will be completely different to the next person, but often something related to your big goal can help. For example, if you’re saving up to go on a beach holiday, buying yourself some new swimmers as a reward can help reinforce your budgeting.

Taking control of your finances, particularly if you are suddenly faced with new expenses, can seem like a daunting prospect. One of the best ways you can break it down into manageable chunks is to create a budget plan and stick to it.

With the right plan, any expense can be budgeted for. We will make sure that your loan repayments are well within an affordable amount, to ensure you can stay on track with your other expenses. If you have any questions, or would like to consider your next bad credit loan with us, speak to the team today on (07)5443 3863, or apply online.