Personal Budgeting

People who work in caring roles, such as veterinarians, nurses and doctors, are often so focused on helping others that their own needs can be neglected.

One of the most common needs to be neglected is taking care of one's personal finances. It's understandable too... people in caring roles have other very pressing priorities and taking care of your own finances can easily be put aside as a task for another day.

However, in order to care for others, people employed in caring roles must first care for themselves and this includes all aspects of personal care: emotional, physical and financial. The benefits of personal budgeting are clear.

Creating and using a personal budget allows you to achieve much more than simply living from one pay packet to the next. A personal cash flow budget will enable you to establish your financial priorities and ensure you have the capacity to cover essential expenses and the flexibility to decide how you would like to spend or save your money.

Additionally, a budget will enable you to plan to have a little extra for contingency. This learning guide outlines the basic steps to create a personal cash flow budget.

A personal cash flow budget can be created by following the steps below:

  • Step 1. Determine your current financial position - bank account and loans
  • Step 2. Determine your anticipated income over the next twelve months
  • Step 3. Determine your anticipated expenditure over the next twelve months
  • Step 4. Do the calculations to determine if you will have enough to cover expenditure each month
  • Step 5. Monitor your progress

  • Determine your current financial position

    Check how much money you have in your bank accounts and other investments and then determine how much money you owe (e.g. on credit cards or loans). What is your current financial position? For an example please see Table 1 below:

    Table 1: Example balances for Jane Student's cash on hand and owings
      Balance at 30th June 2014
    iSaver account $2,740
    My savings account (with debit card) $404
    Total bank account $3,144
    Car loan - principal left to repay $3,000
    Student loan (low interest) $2,000
    Total owings (liabilities) $5,000

  • Determine your anticipated income for the next twelve months

    For people working for wages or on a salary, it is as easy as checking past pay slips to determine net income (after tax and super). However, it's a little more complicated for contractors and people who are self-employed.

    In such cases, you can calculate how much overall tax you will need to pay via tax calculators available on the Australian Taxation Office (ATO) website, and/or use your most recent tax return, quarterly Business Activity Statements (BAS) and advice from your accountant to calculate your outgoings for tax payments and also determine when payments to the ATO are required.

    When determining your anticipated income remember to include other sources of income such as interest on savings or government payments. When you know how much you make per annum, and when you make it, allocate it to your budget in the months that it will actually come into your bank account.

    See Table 2 below for an example of an income pattern for a student:

    Table 2: Jane Student’s budgeted income pattern for 2014 – 2015
    Item Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Year Total Notes
    Income
    Wages 1600 500 500 500 1600 2000 1000 1600 500 500 500 500 11300 1,2
    Other income   100 100 100 100       100 100 100 100 800 3
    Total income 1600 600 600 600 1700 2000 1000 1600 600 600 600 600 12100  

     

    1. Wages variable due to more work over Semester break
    2. Two weeks Phase 1 clinical EMS at Bug A Lugs Vet Services
    3. Allowance from parents

  • Determine your anticipated expenditure over the next twelve months

    Write down all of your current expenses and be sure to make an honest and realistic appraisal of your spending. You can track your expenditure for a month or more for an accurate assessment of how much you spend. It is useful to categorise your spending, such as fixed expenses, variable expenses and discretionary expenses, as listed below.

    Fixed expenses include:

    • Mortgage payment/rent
    • Vehicle loan or lease
    • Other loans
    • Insurance
    • Education
    • Savings plan
    • Any other expenses with fixed monthly/weekly payments

    Variable expenses include:

    • Groceries
    • Utilities
    • Phone
    • Maintenance
    • Clothing
    • Transport
    • Medical

    Discretionary expenses include any expense not directly essential to day to day living, such as:

    • Entertainment
    • Clothing
    • Furniture
    • Holidays
    • Sport
    • 'Pocket money'

    For an example of a university students expenditures see Table 3:

    Table 3: Jane Student’s budgeted outgoings for the next year
    Expenses Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Year total Notes
    Dining out and takeway food 100 100 100 20 100 150 150 100 100 100 20 20 1060  
    Entertainment 50         50 50 50         200  
    Car maintenance             500           500  
    Car registration 158     158     158     158     632  
    Petrol 50 100 100 100 100 50 50 50 100 100 100 100 1000  
    Car insurance   18 18 18 18 18 18 18 18 18 18 18 216  
    Clothing 20 20 20 20 20 20 20 20 20 20 20 20 240  
    Books             500         500 1000  
    Stationary and printing   15 15 15 15       15 15 15 15 120  
    Mobile phone plan 40 40 40 40 40 40 40 40 40 40 40 40 480  
    Travel - Holiday             2500           2500  
    Medical expenses 80     80     80     80     320  
    Pet care 20 20 20 20 20 300 20 20 20 20 20 20 520 1
    Club fees/Memberships               80         80  
    Charitable donations 10 10 10 10 10 10 10 10 10 10 10 10 120 2
    Spending money 150 100 100 200 50 400 200 200 100 100 100 100 1800 3
    Total expenses 696 423 423 681 373 1038 4296 588 423 661 343 843 10788  

     

    1. Annual health check and vaccination in December
    2. Regular donation to Animal Welfare League
    3. Vet students ball

  • Do the calculation to determine if you will have enough to cover expenditure each month

    This step involves subtracting your expenses from your income. It is your choice whether you work this out based on weekly, fortnightly or monthly income/expenses. Monthly is the common choice. See Table 4 for an example of the combination of incomings and outgoings, and the effect on the overall bank balance.

    Table 4: Example of a summarised personal cash flow budget with times of negative cash flow but overall positive bank balance
    Item Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Year total
    Total income 1600 600 600 600 1700 2000 2000 1600 600 600 600 600 12100
    Total expenses 696 423 423 681 373 1038 4296 588 423 661 343 843 10788
    Net Cashflow 904 177 177 19 1127 1062 -3296 1012 177 -61 257 -243 1312
    Opening Bank Balance 3144 4048 4225 4402 4421 5548 6610 3314 4326 4503 4442 4699  
    Closing Bank Balance 4048 4225 4402 4421 5548 6610 3314 4326 4503 4442 4699 4456  

    So, what is the outcome? Will you spend more than you will earn in any months? Will you have times of financial stress you can anticipate in the coming year? See Table 5 for an example of a cash flow budget for a student under financial stress.

    Or do you manage to cover all of your expenses and save some money too? If you are spending a lot more than you earn then you need to drastically rethink how you manage your expenses, and if your income and expenses are more closely aligned you may decide to make changes in your spending patterns in order to ensure you accumulate savings.

    To restructure your expenses set an amount of money that is reasonable for you to spend each week after all your fixed and variable expenses have all been accounted for. This requires that you realistically examine the expenses that you can and cannot alter.

    For example, your mortgage or rent is a fixed expense, so in order to reduce expenses you will need to examine discretionary expenses i.e. those expenses you have control over. Be realistic about what you are prepared to change. Do not simply decide to reduce your food bill by $30 a week without having a plan regarding what you are prepared to change.

    For example, you might decide to purchase cheaper brands at the grocery store, or you may decide to take your lunch to work instead of buying it. Regardless, your expense targets should be analysed using the SMART strategy:

    • Specific - how much are you spending on a particular expense?
    • Measurable - how much do you realistically need to spend?
    • Attainable - is the expense affordable for you?
    • Realistic - can you afford this expense without forgoing essential items?
    • Timely - is it the right time to spend this money? Should other expenses be paid first?

    See Table 6 for an example of an adjusted personal cash flow budget.

    Table 5: John Student’s situation of financial stress exposed by his 2013 - 2014 cash flow budget
    Item Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Year Total Notes
    Income
    Austudy 1012 1012 1012 1012 1012 1012 1012 1012 1012 1012 1012 1012 12144  
    Total income 1012 1012 1012 1012 1012 1012 1012 1012 1012 1012 1012 1012 12144  
    Expenses
    Eating out 150 50 50 50 50 50 150 50 50 50 50 50 800  
    Alcohol 150 50 50 50 50 50 150 50 50 50 50 50 800  
    Rent 300 300 300 300 300 300 300 300 300 300 300 300 3600 1
    Electricity, Gas and Water bills 150 150 100 100 100 100 100 100 100 150 150 150 1450 1
    Groceries   200 200 200 200 200   200 200 200 200 200 2000  
    Public transport   40 40 40 40 40   40 40 40 40 40 400  
    Clothing and shoes     60     60     60     60 240  
    Books             150         150 300 2
    Stationary and printing   20 20 20 20       20 20 20 20 160  
    Mobile phone plan 60 60 60 60 60 60 60 60 60 60 60 60 720  
    Travel - Holiday 500           500           1000  
    Pet care 40 40 40 400 40 40 40 40 40 40 40 40 840  
    Day to day cash 100 100 100 100 100 400 100 100 100 100 100 100 1500  
    Total expenses 1450 1010 1020 1320 960 1300 1550 940 1010 1010 1010 1220 13810  
    Net Cashflow -438 2 -8 -308 52 -288 -538 72 -8 2 2 -208 -1666  
    Opening Bank Balance = $562
    Closing Bank Balance 124 126 118 -190 -138 -426 -964 -892 -900 -898 -896 -1104    
    1. My share of house rent and bills
    2. Purchase of second hand books for Uni
    3. Dog food, veterinary fees and annual health check

     

    Table 6: A personal cash flow budget brought back into positive
    Cash Flow Budget  2013 to 2014
    Item Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Year total  Notes
    Income
    Austudy 1012 1012 1012 1012 1012 1012 1012 1012 1012 1012 1012 1012 12144  
    Total income  1012 1012 1012 1012 1012 1012 1012 1012 1012 1012 1012 1012 12144  
    Expenses
    Eating out 30 30 30 30 30 30 150 30 30 30 30 30 480  
    Alcohol 50 50 50 50 50 50 150 50 50 50 50 50 700  
    Rent 300 300 300 300 300 300 300 300 300 300 300 300 3600 1
    Electricity, Gas and Water bills 150 150 100 100 100 100 100 100 100 150 150 150 1450 1
    Groceries 200 200 200 200 200 200   200 200 200 200 200 2200  
    Public transport   40 40 40 40 40   40 40 40 40 40 400  
    Clothing and shoes     60     60     60     60 240  
    Books               150       150 300 2
    Stationery and printing   20 20 20 20       20 20 20 20 160  
    Mobile phone plan 60 60 60 60 60 60 60 60 30 30 30 30 600 3
    Travel - Holiday             500           500 4
    Pet care 40 40 40 400 40 40 40 40 40 40 40 40 840  
    Day to day cash 50 50 50 50 50 50 50 50 50 50 50 50 600 5
    Total expenses  880 940 950 1250 890 930 1350 1020 920 910 910 1120 12070  
    Net Cashflow 132 72 62 -238 122 82 -338 -8 92 102 102 -108 74 6
    Opening Bank Balance = $562
    Closing Bank Balance 694 766 828 590 712 794 456 448 540 642 744 636    
    1. My share of house rent and bills
    2. Purchase of second hand books for Uni
    3. Change to cheaper mobile phone plan when contract due for renewal
    4. Reduce annual holidays to one short holiday
    5. Reduce day to day spending by buying a travel mug and taking my own coffee in the morning instead of buying it
    6. There are still months where outgoings are greater than income,  but by sticking to the budget the bank balance remains in the black

  • Monitor your progress

    Review your personal cash flow budget once a month to ensure that you are on track with your income and expenses.

    Determine if you are over or under budget. Do you need to alter your budget to be more realistic? Can you put more money into savings than you originally planned?

    Revisit the SMART list to check that your budget is working for you. Regular review of your budget will ensure that the personal budget you have prepared remains realistic and relevant for your needs.

  • Additional personal budget considerations

    The numbers you plug into your personal cash flow budget calculations are flexible. You can change how much you decide to spend on entertainment, clothing, even rent, but some expenses are easier to change than others. Some people apply the principle of don't spend it unless you have it. This is a very useful strategy to avoid high interest payments and to ensure you remain within your budget.

    Here are some tips for ensuring you meet your budget goals:

    • Factor in emergency expenses
    • Remember to make seasonal adjustments (e.g. for heating in winter)
    • Remember to make adjustments for when you are to go on extra mural studies for your university course or other activity or holiday
    • Revise your budget when your financial circumstances change
    • Be aware of hidden expenses (such as bank charges or loan fees)
    • Keep your personal budget goal in mind to keep you motivated to achieve your goal.

  • Acknowledgements
    • Ian Cooper, University of Adelaide