Finance Wanted.

By Sandy Cosser

If you're anything like me, your salary has an alarming tendency to disappear without you really knowing what it is that you've spent it on. You know the basics are covered and you're not going to starve come month end, but you don't have much left over to save or see you through emergencies. Many people who used to be in the same boat as me swear by a mysterious solution called a "budget" that cured them of their financial haziness.

Budgets can appear daunting, and for those of us with a relaxed, 'come what may' attitude to life, the idea of sticking to a budget can be uncomfortably claustrophobic. Here's what I have learnt over the past couple of months: budgets do work. It's a truly amazing phenomenon, but their success is undeniable, and they're not as difficult to stick to as you might think.

Budgets are also very easy to plan. The first step is to work out what you actually take home after tax has been deducted from your salary. Work from net, not from gross. It sounds obvious but you'll be amazed at how many people make this mistake. The second step is to categorise your expenses. You may have some regular stop orders that come off every month, and it's important to know exactly what these amounts are. Keeping an accurate record of your spending is key to making a budget work. I find, however, that it's quite a good idea to round your expenses up to the nearest five or ten. Always overestimate than underestimate.

After you've considered all of your automatic deductions, you need to categorise your other expenses. Your categories have to reflect your lifestyle, as it's not always possible to generalise according to someone else's budget template. If you spend a certain amount of money on CDs or DVDs a month, write it down. If you go to movies regularly, include that. You could categorise them all together as "Entertainment" or you could simply create individual categories for "Movies", "CDs" and "DVDs". So long as you know what each category entails, you're ok.

It's not always possible to know exactly what your expenses for a category are going to be for a particular month. Electricity and telephone bills can fluctuate from month to month depending on usage. In cases like this, look at bills that go back a few months and work out an average cost. I would round up again and work according to that figure. Remember that some expenses are also seasonal and will need to be adjusted accordingly. For example, in winter you may find that your electricity costs go up as you use heaters and electric blankets to stay warm.

When setting yourself budget limits, try to be as realistic as possible. Your may have spent a grand and a half per month on groceries for the last six months, but look at what that money bought you. If your list consists of mostly ready-made meals, you may want to consider buying more fresh produce and cooking meals from scratch. It doesn't take that much more effort to feed yourself and it saves you a great deal of money. Try and set your budget to what you think you should be spending, not what you would like to spend.

An important tip is to always set money aside for emergencies. If you don't have a medical aid, create a category called "Medical" or something like that, so that visits to a doctor or medication can be paid for if needed. If you don't use that money every month, let it build up so that if you have a major emergency you'll have a safety net to fall back on. Also, we've heard this piece of advice a lot but not all of us pay attention to it: put money aside for savings. With a smart, practical budget, this can be done.

My last tip for budgeting is to always remember that banks are semi-evil and charge you for everything. Make allowance for bank charges, estimate them and include them in your budget, especially if you have to budget to the last cent. And remember that bank charges go up often and without warning. Keep an eye on your bank statements to keep track of what your bank is charging you.

Don't be afraid to include categories that allow for treats and special occasions. But keep them reasonable and stick to them rigidly. It's far better to go without that beautiful dress or new set of golf clubs than to have to dip into your savings to make it through the last week of the month.

Finally, remember that money is better than poverty, if only for financial reasons.

Recommended sites:

http://financialplan.about.com/cs/budgeting/a/GuiltFreeBudget_2.htm

http://www.stanford.edu/~dua/files/quotes.html

Sandra wrote this article for the online marketers Financial and Insurance News site index for the latest news in finance and insurance one of the leading site indexes for information on developments in the fields of finance and insurance.