This week Donegal Daily’s Financial Columnist Sean McNulty talks all things budget and gives readers the Top 20 things you should add into your budget plan!
If you have decided to make a budget, well done! You are in the right place. Creating a budget is a great way to improve your current financial situation and provide financial freedom as much as possible in the future. For many people, having a nice bank balance gives them great financial freedom. But what should a budget contain? How do you calculate your budget? And what things items that you should include in a budget will be discussed in greater detail in this article. Although creating a budget that works for you may take a little bit of your time, having one is essential to achieving any sort of financial freedom.
What Should Be Included in a Budget?
Your income, savings, debt repayment, and general expenses should all be included in a budget.
You need to consider all your income sources while calculating your total income. You can earn money in addition to your primary source of income in various ways, such as by investing or starting a side hustle. A good salary is essential for covering your living costs, but sometimes more is needed. If that is the case, you will need to either reduce expenses or plan a strategy for increasing income from other sources. Whether you are paid hourly, daily, weekly, or monthly determines how to calculate your total payment.
Savings (including retirement)
Savings goals can be short-term and long-term, such as saving for a home deposit, purchasing a new vehicle, travelling, and other similar endeavours. You can always be prepared, so you should add emergency savings to your plan. It is always early enough to begin saving for retirement, no matter how old you are when you create your first budget. Everyone has a different investment planning approach, so before starting, do some research or reach out to a financial advisor.
The ultimate objective is to live debt-free, but the only way to do so is to include debt repayment in your budget. It could be debt from a credit card, medical bills, college education, or other circumstances. Before working on the bigger, more difficult debts, try paying off the smaller ones first, or you might want to try pay off their higher percentage rate ones first.
Even though every person has unique circumstances that influence their spending, it is still helpful to have a general idea of what to include in a budget. Of course, the items to include in a budget will look different for each person. However, most people have certain essential living expenses in their budgets. The three main categories of expenditures that should make up the majority of your budget are as follows:
1. Essentials: These are the cost you can’t live without, like rent and groceries.
2. Savings: This could be anything from your pension to your personal savings account. Your investment funds are how much cash you will take care of every month. Since increasing your savings is the objective of budgeting, avoid drawing on your emergency fund unless necessary.
3. Discretionary spending: It is spending you do on things that aren’t necessary if you have money left over. It includes entertainment and recreation costs.
Remember: If you need more than your income to cover your expenses, you might have to reduce them to fit your budget.
Calculating your Budget
Using formulas like the 50/20/30 budgeting rule can help you take a first big leap into committed financial planning. The theory is you should divide your personal finances into three main categories and apply a percentage allocation to each as per below
- Essentials: 50% of your earning
- Savings: 20% of your earnings
- Desires: 30% of your pay
The above theory is not widely contested as it is a subjective advice and generally a decent place to start. There will be some variances, that is okay but if anything else you should test this theory to see how far away from it you fit. And if you can make adjustments, what would those look like and what would that mean to your financial position overall. Below we start with the 20 most common things you should include in your budget. While some of these are considered luxuries most fit squarely into your ‘essentials’. We are not here today to critique what goes where, but what you should consider and should not forget in your first budget.
Rent or mortgage payments should be your first and largest fixed expense. As well as the principal and interest on the loan, which will likely be included in your mortgage payment don’t forget the home insurance and property taxes.
2. Food and Groceries
If you don’t budget well, food can cost a pretty penny. You might get carried away going to new restaurants and ordering appetizers, dinner, and drinks regularly if you moved out and started a new job. Avoid succumbing to this temptation; include food expenses in your budget and set aside a set amount for eating out and ordering in. Having a budget for groceries will save you money in the long run. Prepping meals can also help you save money and cut down on how often you eat out.
A separate utility category in your budget can help you understand how much you spend on household expenses.
Examples of utilities include:
• Waste collection
4. Daily expenses
Your daily latte from your favourite cafe or a drink after work might seem like only a bit of money. However, these expenses can quickly add up over a year. So please make an effort to add up all of these expenses and include them in your budget.
Because you won’t know about one-time expenses in advance, it might not be easy to budget for them, but you should always have some money set aside just in case. You will be surprised if you not prepared for an unforeseen expense, like a car breaking down.
There will always be costs associated with maintaining a household. Include these costs in your budget if you hire cleaners to clean your apartment once a month or take your car to the car wash. Painting, cleaning your house, replacing or repairing broken appliances, and cleaning your furniture can all be expensive, so make sure to budget for these costs.
7. Monthly Subscriptions
If you have subscriptions to streaming services, music services, and online publications, make sure to include them in your household budget. Remember that you should budget how much data and phone you use to keep your plan within your budget.
Do you have friends or family visiting you during the summer or the holidays? If this is the case, you will most likely incur additional transportation, laundry, groceries, and “showing friends around town” expenses when they visit. Even when you won’t have visitors, putting aside a small sum each month is the best way to account for this line item in your budget.
9. Travel & vacation
When you go out of town to visit family or friends, you should budget your trip. How much you budget for depends on how far, where, and how you’ll be travelling. Make a plan for where you’ll be going, how much it will cost to drive, train, or fly, and how much you’ll spend on food and lodging.
Vacationing is entirely different. Because many costs are associated with longer trips, lengthy vacations require a separate budget. An excellent way to ensure you have enough money for your trips and don’t overspend while you’re there is to include your travel costs in your budget.
If you belong to a gym or yoga studio, you may be required to pay fees every month. Include these items in your budget without a doubt. Also, track how often you go to the gym if you are a member. It is so simple to sign up for a monthly gym membership and then not use it for a while. Memberships can be pretty expensive; if you make it a habit to go, it will be worth the money (and your body will appreciate it).
Over-the-counter medications should be included in your budget. However, it is difficult to predict how much a prescription will cost because you never know when an illness will strike. If you’re a parent, a healthy stock of Calpol etc is needed in the Winter.
12. Pet care
Even though our furry friends bring us so much joy, they can also cost us a lot of money. Plan for monthly expenses like pet food and grooming and veterinary costs like vaccinations and check-ups.
Parking is another expense that is easy to overlook but can rapidly add up over time. If you commute to work in town, you probably have to pay for parking from time to time or have signed up for a monthly plan at your workplace or in a parking structure. Remember these costs for your financial plan, and leave extra space while you will pay to stop when you visit a carnival or while you’re travelling.
14. Fuel/Motor/Road tax
Most people budget for petrol/diesel but frequently overlook the cost of motor tax. You should factor in the cost of your motor tax in your budget so that you are not surprised when you receive a notice in the mail that your road tax is about to expire.
Who says you can’t budget for fun activities as well? Of course, you should include any costs associated with “having fun,” such as going to the movies, the club, or concerts.
Budgeting for entertainment can be challenging because you never know when you want to do something fun (some people prefer to be very impulsive with their entertainment activities).
After listing your living spaces, figure out how much money you have left (the 30% desires part) and put some of it toward entertainment. You can save the extra cash or roll it over to the following month, even if you use only some of your entertainment budget each month.
Don’t be afraid to spend more than just a few euros on entertainment! It’s not fun to save money when you’re always at home. We have a life to live too. Also, remember that the more you cut back in other areas, the more money you can spend on entertainment.
16. Birthday celebrations
Make a birthday budget! Even if you like to keep things low-key for your birthday, you should spend money on a nice cake or a bottle of wine. You should always put money aside for friends’ birthdays. Birthday parties must be included in your budget if you have children.
17. Christmas gifts
The significant financial burden of gift-giving can make the Christmas holidays taxing. But if you budget for the holidays, you can make the holidays much easier on yourself and your finances. First, divide the amount you typically spend on gifts around the holidays by 12 to get an estimate: that is the amount of money you should set aside each month. If you don’t have small kids, you should seriously mull over taking your family on a short getaway instead of burning through excessive cash on gifts. You could save a lot of money, spend less time shopping for the holidays and make memories with your family that are worth more than material possessions.
It’s easy to forget the fees you pay each time you visit the dentist or doctor. Still, over time, fees can add up. Also, as you get older, healthcare costs will show up more in your spending, so it’s best to start budgeting for health now to get used to it.
Those with children and people of any age will be responsible for paying for their education. Fees for school trips, school supplies, tutoring, educational subscriptions, and college textbooks are all examples of education expenses.
20. Personal care
Do you go to therapy once a week? Or do you practice self-care by getting facials every month? Personal care is important for your mental health, but you should also budget for these costs. If you need to cut costs, consider doing at-home facials or switching to monthly therapy instead of the spa.
When you start budgeting and keeping track of your spending, you will undoubtedly reduce your financial stress and improve your finances, regardless of whether you include these items in your budget or just a few of them. Knowledge is power, and you should hold the power when it comes to your money.
Budgeting May Take Some Practice, But It’s Worth It
Budgeting is a learning process; it will likely take trial and error before you figure out a budget that works for you. However, once you figure out what works best for you, you will have much better control over your finances. Trust us, it is worth it. Each person’s budget will differ regarding what it includes, but the above items are an excellent place to start. If you need any help regarding budgeting, don’t hesitate to contact us at email@example.com, or you can call us at +353-74-911-6777.
Sean McNulty is the founder and Managing Director of Rethink Money Ltd, a financial advisory company based in Letterkenny. Sean’s company is a digital-first advisor with a bespoke software to help clients best manage their financial needs.
For a free consultation feel free to reach out to us at firstname.lastname@example.org