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A Personal Budget: Why is It Important and Where Do You Start?

20/03/2020 by Pascoe Partners Accountants

A Personal Budget: Why is It Important and Where Do You Start?

 

Most small business owners are aware of the benefits of having a budget to guide them.

But are you as careful with planning your finances at home? Do you have a personal budget to guide your household spending?

The benefits of being across the expenses that are coming in the future apply just the same to the home as to a business…

Personal budget: Why is it a necessity?

Did you know that according to a 2013 Gallop poll only one in every three households had a budget?

That figure is probably not too different today – and it should be a red flag for families without a home budget.

The income in most homes is fixed to a certain degree (a fortnightly wage or weekly salary). So are the expenses.

It is therefore very important to be aware of when the chunky expenses are going to be due. You need to plan ahead and ensure that there are sufficient funds in the account to make the payments.

It’s far too easy these days to live in credit and we have written about the perils of that. Credit card interest is very expensive and can too often lead to a downward spiral of debt.

Budgets are also a great way to keep the impulsive spending in check. It’s not important that you account for every last dollar in your budget but you should have an idea of what the monthly costs are.

A personal budget is also very handy if you are looking to borrow some money in the future. One of the things that the banks will require is a statement of position, which normally includes a breakdown of monthly income and expenses.

What should you look out for in your personal budget?

One of the things that you should look out for in your home budget is dining out. It is a big money waster.

Of course, it’s nice to have a meal at a good restaurant but it should be seen as a treat or reward.

Buying a bottle of wine at these restaurants will often incur a mark-up of up to 300 percent on what you would pay at a liquor store. If possible, go to a BYO but also be aware that many of these restaurants charge you corkage for the privilege of pouring your own wine.

Another drain on the budget can be multivitamins. They are largely unregulated and most have questionable medicinal value other than a placebo effect.

Always consult your medical adviser before taking these supplements as sometimes they can affect the benefits of prescription medication.

Finally, stay away from online shopping after having a few drinks!

An American survey by Finders showed that in 2019, 58.4 million Americans spent $44.9 million in online shopping on what is termed “drunk purchases”.

That is, they spent that money under the influence of alcohol. Probably safe to say that a number of those purchases were later regretted!

If you don’t yet have a personal budget in place, try our home budget template. It will help you get your head around your home finances. Contact us here for a copy.