HOW TO BUDGET. by John Paech.

1. What is a budget?
Have you ever asked yourself ' Where does my money go?' Is this a question you ask yourself often.
This is the perfect reason for creating your budget. Any business that is prospering will have a budget. The function of a budget is to ensure that the person controlling the money knows what cash is being earned , and what cash is being spent. By comparing both amounts at the end of a period, they can determine:
a) what cash is left over at the end of the period; or
b) how much has been spent in a period.

2. Where did I start?
Creating a budget was actually very simple.
First, I needed to know what my expenses were - this is an expense summary .
So I wrote down a list of everything I could think of that I spent money on: Rent, Phone (mobile & home), Car repayments, Credit card - (spending if not already identified), Electricity, Gas, Clothes, Presents, Entertainment, Food, Car Rego, Fuel, Insurance - home, car. Absolutely everything!?
Second, the items above will have different payment frequencies and potentially varying amounts. (Ie. Phone bills may be monthly; car rego may be yearly).
So the next thing to do was to break them down into more manageable periods, and allocate the expenditure amounts next to each one.
Since I received income every two weeks, this became the "period". This period is used to identify how much needed to be set aside for a particular item, each pay period. So if the car rego is $300 for 3 months and I received income every two weeks: divide 3 months (12 weeks) by the pay period which in this case is two weeks. This results in 6 two week periods over the 3 months. Next divide the cost ($300) by the period (6), this results in a cost per period of $50. I had calculated how much needed to be saved for the car rego per pay period. This was done for all items on the list.

3. Theoretical Result
  After all items on the list were broken down to the same income period, and added together, this gave me the expenses for each income period. Taking the expenses away from the fortnightly income, should give me the surplus(left over money).

4. Write an expense diary
This is where many peoples budget planning falls apart. Be strong, and keep writing for a month...
Every day I would write down everything I bought, each cup of coffee $2.40 per cup, each can of soft drink, each packet of sweets.
Why did I not add all of these in before?
At the end of the month of doing the diary, I re-examined the expense summary to see where the actual money went. Do you remember shouting your friend that last drink on Friday night?

5. Finally, the Budget
I then had to decide what expenditure was
- necessary - required to survive - rent, transport to work, food;
- highly desirable - could survive without, but is convenient in a time poor lifestyle - car payments (on second car);
- luxury items - not needed, but life is better with these items - new shoes, drinks, tobacco, entertainment
- un-necessary - certainly do not need them, and if they were not on offer, I would not miss it - concert tickets, new shoes that look good and will not be wore to a specific event, car magazines, can of cola each day with lunch.

In addition, I wanted to factor in savings ie. I needed to pay a certain amount into a separate account to save for a house deposit or a holiday.
From the expense list I highlighted the necessary items and left these in the new expense budget. Then, I added my savings payment. Finally, I chose carefully the highly desirable items, the luxury items and maybe a treat from the un-necessary items that I could afford to put into the budget and either have money left over at the end of the period or have spent my weekly earnings.

6. Review & Refining
I had to test that I could really do it. Another month of writing down all of my cash spent (don't forget the credit card(s)). This habit meant that I knew immediately when I had bought something not on my budget. Now I would have to go without something else to ensure that I was keeping within the budget.