Creating a budget for your bills is easy. Budgeting for everything else seems almost impossible. I mean, how can you say you’ll only spend $30 on fruits and vegetables when they’re sold by weight? To do this, you would have to take a calculator with you when you go shopping and weigh everything before you buy it. This is in addition to the fact that the price of food seems to be continually rising. The same can be said for gasoline. If you use 20 liters a week, what do you do when the price changes? You would have to rearrange your entire budget.
The solution to this problem is to budget the most you think you would spend on these items. This way, if you don’t spend as much, you will have saved money that you can later save for emergencies.
So how do you create your budget in the first place? Many people will tell you to start by writing down everything you spend money on for the next month. What if you want to start your budget now, instead of a month from now? Also, if you have bills that only come in every three to six months or even annually, they won’t be included if you budget with just one month of expenses.
Let’s look at it from a different perspective. The first thing I look at is my regular bills. Things like rent, electricity, phone, insurance, car registration, loan payments, etc. These are all regular bills that must be paid on time and are usually around the same amount each billing cycle. So the first step is to write down all these bills and how much you will have to pay. The next step is to calculate an annual figure for each invoice. For those invoices that come monthly, the amount is multiplied by 12. For three-month invoices, it is multiplied by four and six-month invoices are multiplied by two. Then we need to calculate how much these bills will cost us each pay period. If you are paid weekly, you would divide the yearly amount by 52. If you are paid biweekly, you would divide by 26, and if you are paid monthly, you would divide by 12. This gives you the amount you need to budget for. for each pay period. The rest of your salary is used for food, gas, normal living expenses, and savings. Most people have a general idea of how much they pay each week for these items, so that amount is used for their budget.
Now that we have our budget, how do we make sure we stick to it? The first step is to make sure that the bill money we are budgeting for is not sitting in our everyday bank account. The temptation to spend can be too great if money is readily available. I heard about a system a few years ago where you get a folder with plastic sheet protectors and have one for each of your bills. Then, each week, you put the budgeted amount of money in the appropriate pockets so that when the bill comes, you just take the cash out and pay. The big flaw with this system is that you end up with a lot of cash in your house. There is nothing to stop you from “borrowing” the money from your bill and there is also the risk of having it stolen.
I recommend that you set up a separate bank account for your bill money. Ideally, this account would not come with an eftpos card, but would instead be accessed via phone and internet banking. Most bills can be paid with bpay, so when your bills arrive, you can pay them directly from your bill savings account.
