An in-depth approach to monthly budgeting

If you’re struggling to balance your monthly budget, you’re not alone – budgeting is a problem for millions (if not billions) of people around the world. Since ancient times, people have been grappling with the problem of spending less than they earn, with every time in history having its famous misers on the one extreme and spendthrifts on the other. Fortunately, you don’t have to fit into either one of these categories – with an in-depth approach to budgeting you’ll be able stay debt-free while enjoying a great quality of life.

Getting Started

If you’ve read Northwood’s eBooks on financial planning and debt management, you’ll know that budgeting is an important part of every successful investment strategy: after all, your monthly surplus will form the capital for your investments.

To get started with your budget, you’ll need either a blank piece of paper or a blank excel worksheet – either is fine. Create two columns for yourself: one for income and the other for expenses. You’ll then be able to set up your budget as follows:

• Under the income column, write down all the money you make each month. This could be your salary, rental income on secondary properties, or interest you’re earning on a money market account. Add these sums of money together, and you’ll know your total income.
• Under the expenses column, you’ll need to list your monthly expenses, from bond payments to grocery bills and everything in between. At this point you’ll notice something: if you’re like most people, it will take a lot longer to list your expenses than it took to list your income – with all those expenses, budgeting is a crucial process! Adding all these amounts together, you’ll know your total expenses.
• Once you’ve calculated your total income and expenses, you’ll be ready to see whether your budget balances: your total income minus total expenses will give you your monthly surplus.

Is Your Monthly Surplus Positive?

If your monthly surplus is positive, you can congratulate yourself – your monthly budget is balanced. However, you should ensure that you’re not spending more than 75% of your income (after tax) each month, because you need to invest your surplus for your retirement. You can also use your surplus to create savings for a new car, a holiday, or furnishings for your home – whatever you have in mind, it’s always better to pay cash for it and avoid debts and interest payments.