How to prepare for budget planning
Before you grab your calculator, it’s worth determining what financial situation you’re in today and where you’d like to get to.
Set a goal
The first step you should take before you start planning your income and expenses is to determine exactly why you want to do it in the first place. Keeping a budget is an activity that takes time and effort. Without an understanding of what goal planning helps you achieve, the endeavour can be abandoned very quickly.
Financial consultant Kumiko Love writes in her book “Thinking with Money” that the main thing here is not numbers. If there’s no motivation, there’s no point in planning. So before you start budgeting, it’s worth thinking about what life goal money will help you achieve.
This goal should not be formal, but one that evokes strong emotions. And which you would never give up if you knew that you would definitely be able to save up for your dream. For example, it is very important for one person to travel every summer, and to be in unfamiliar places. And another – to move into a spacious flat where everyone in the family will have their own room.
One thing most people don’t realise about budgeting is that it’s not about the money. It’s about you. Budgeting is personal development in disguise. If you know what you want out of your money, progress will happen – whether you have a lot of it or a little. The thing is, most of us don’t realise what we really want from our money.
Analyse your current income and expenses
The second important step is to determine exactly how you spend your money now. To do this, it’s worth analysing your income and expenses for at least three months. This will allow you to see patterns that may surprise you.
You can study your income and spending history in your mobile bank. Or you can start recording all your personal transactions right from the beginning of the next month and keep doing this until you have enough data to analyse.
This step is important: this way you won’t be taking figures for your future budget from the ceiling or from some financial guru’s social networks. We all have different priorities. Some of us will never give up a fitness centre membership. And someone will easily replace cardio exercises on the track in the gym with a morning jog in the nearest public garden. But will plan a manicure and eyebrow colouring, even if they have to arrange a couple of extra days of unloading.
Therefore, it is worth analysing what expenses you have repeated from month to month. And which of them you are not ready to give up. And at the same time to see if you are not spending much more than you thought on some not very important little things. Like a takeaway cup of coffee in the morning. It may not be an important ritual for you, but just a habitual action that you repeat automatically.
How to budget if your income is unstable
Freelancers who do private commissions sometimes find themselves in a situation of instability. This month orders and money may be plenty, and next month it may be much less. In such circumstances, planning is even more necessary than with a stable and predictable income.
You will need a table with five columns: one for income and four for expenses. You can make a separate file-table or prepare a paper notebook.
Write down all income
For those who receive a fixed salary on the card, it is easier to do this: you know in advance when and how much money will come. If payments come irregularly, it is worth writing down each one. And then select two dates – for example, the 10th and 25th of the month.
Consider these days as paydays. And allow yourself to use the money that came for a fortnight, only after the next checkpoint – one of the scheduled dates. This way, you won’t be tempted to immediately spend the money you’ve received and then stay broke.
In addition, it is always a good idea to start planning your expenses with an unstable budget from the worst-case scenario. That is, imagine that you will have the least income in a month of what you had, for example, for six months.
We recommend budgeting according to the worst-case scenario, i.e. the lowest possible amount of income and the highest possible amount of expenses. To be prepared for the worst, you have to plan for the worst, right?
Determine the fixed costs
This is the second column of the table. This is where all the money you will be required to pay. These expenses are often talked about in materials that deal with financial planning.
Usually utilities and minimum loan payments are entered in this column. But it’s not uncommon to forget internet and mobile phone bills, as well as subscriptions to online cinemas or other digital products. And then there are the amounts that need to be paid every few months. For example, it could be a payment for a sports subscription.
Also, taxes are sometimes not added here, because you may get a different amount each month. But for an individual entrepreneur or self-employed person, this is an important part of mandatory expenses.
Therefore, it is worth at the beginning of the month to enter in this column absolutely all planned payments, even if they do not exceed a couple of hundred rubles. The amount that will be needed to pay the tax, you can find out, for example, in the application “My tax” for the self-employed. Or calculate it yourself.
And then it is worth planning which of the mandatory expenses will be paid on the first, and which – on the second “payday”. And put appropriate reminders in the calendar.
