The InfoChoice Budget Planner Calculator helps you get a better understanding of your finances, providing a roadmap that can help you take control of your income and expenses.
What is the importance of budget planning?
With proper budget planning, you will get a clear and accurate picture of your financial situation. Furthermore, it allows you to track your income, understand where your money is coming from, and analyse how it is being spent. This awareness is the foundation for making informed financial decisions.
Planning is also the first step in creating financial goals — it will allow you to allocate funds towards your targets more efficiently.
If you have existing debts, using a budget planner will assist you in navigating your finances to ensure that you reduce your existing loans.
Ultimately, budget planning plays a vital role in helping you achieve financial stability and work toward your desired financial future.
Essential steps in creating a budget plan
To create a budget plan you will need to follow these steps:
Step 1: Keep track of your income
You will have to document your income sources, whether you receive regular income from working, you are receiving pensions or government benefits, or you have your own business.
All the money coming in, including how much, their sources, and their frequency must be noted in your budget plan.
Step 2: Calculate your expenses
Identify your essential, recurring expenses, often referred to as “needs”. These are the necessary expenditures for sustaining your daily life. Expenses can be further categorised into fixed expenses, unexpected costs, and debt.
Fixed expenses include your rent and mortgage payments, utilities, rates, household essentials, transportation, and family-related costs like childcare and school fees.
Included in the unexpected expenses are medical bills, car repairs and services, pet costs, and other crucial items that do not necessarily fall within regular expenses.
Under debt expenses are your credit card payments, personal loan repayments, and home loan commitments.
Step 3: Establish a savings goal and set a spending limit.
After deducting your expenses from your income, you are left with your spending and savings budget.
You should prioritise setting aside an amount for your savings first before determining how much you can spend on discretionary expenses like shopping, travel, dining out, and hobbies.
The surplus from deducting the expenses from your income can be used to build up your emergency fund or boost your savings. It can provide a financial safety net for unforeseen expenses.
Do not be afraid to start small — consistent saving habits can make a substantial difference.
Step 4: Review and adjust your budget
Every now and then, you must ensure that your plan works for you and your lifestyle. If your work circumstances change — a salary increase, for instance — you can rework your plan to allocate more for your savings or you can add budget for something you are looking forward to doing, like travelling or buying something big.
What are some strategies for effective budget planning?
An effective budget planning starts with tracking your expenses and income. You can use the InfoChoice Budget Planner Calculator to record each source of income you have and every expenses you make. With the tool, you can also categorise your outgoings and indicate whether you incur them on a weekly, fortnightly, or annual basis. Once you have the results from the calculator, you can now do the following:
Set clear financial goals — You must define your objectives. Having a specific goal will not only give your budget a purpose but also provide you with motivation to stick to your commitments.
Prioritise savings – If there is a surplus after deducting your expenses from your income, make sure that you prioritise savings. It may even be better to set aside a specific portion of your income first each month before budgeting for expenses. You can set up automatic transfers to your savings or investment accounts to ensure that you are able to save every month.
Reduce unnecessary expenses — You can review your variable expenses closely and identify areas where you can cut back. For instance, you may consider reducing discretionary spending, such as dining out or entertainment, to free up more funds for saving and debt reduction. You can also be mindful of impulse purchases and consider implementing a "waiting period" before buying non-essential items.
Build an emergency fund — Having an emergency fund, which is separate from your savings, is also crucial. An emergency fund can cover unexpected expenses or financial setbacks. It is good practice to aim to save at least three to six months’ worth of living expenses for your emergency fund.
Reduce debt – When dealing with existing debt, ensure that you target those with high interest rates first. You can always try to consolidate your loans or refinance your home loan to reduce interest charges and make it easier for you to settle your debts.
Explore investing – You can try to grow your money further by investing. However, only consider doing this when you have already built up your emergency fund and significantly reduced your debt. You can start your investment journey by considering term deposits or savings accounts — these are relatively safe forms of generating interest income.
Seek professional advice — If you think you need professional help in handling your finance, reaching out to a certified financial planner or financial advisor is the way to go for personalised guidance. You need to factor in, however, the cost of hiring a professional to help you with your budget planning.