New Year’s Resolutions: I will manage my money better

At the start of every year, we make rash resolutions aiming to overcome the excesses of the year before. Just like dieting, we pledge to stick to a more frugal budget, cut down on the spending and watch our figures!

And like dieting, budgeting cannot be viewed as a “crash” exercise, but should be embraced as a complete lifestyle change and a lifetime commitment.

A recent survey in the US indicates financial honesty and dealing openly with money issues are crucial within a relationship or family. The Harris Interactive online poll commissioned by the National Endowment for Financial Education shows 31% of American couples who have combined finances were not truthful about issues such as hiding cash or a bank account or about debt or earnings. Committing “financial infidelity” by lying to their spouses about money often leads to consequences such as conflict and at worst, separation or divorce.

“These indiscretions cause significant damage to the relationship,” said Ted Beck, chief executive of the National Endowment for Financial Education.

Some people say they can't budget. They say it's too complicated or they don't know where to start. Or they think they've got enough money and don't want to be restricted by a budget because it might mean going without.

But a budget is a flexible tool, not a straightjacket.

No matter what you earn, it's easier than you think to take control of your money. A few simple things done regularly can put you in charge and really make a difference.

A budget helps you understand where your money goes so you can take control. A budget can help you decide what you want and plan how to achieve it.

Steps to setting your budget:

Step 1: Pick a timeframe

Do you need to use your budget as a weekly guide, a fortnightly guide or a monthly guide? Some people like to match their budget to their pay period. Another option is to do a quarterly or annual budget. This can help if you want to save for large periodic bills or annual targets like holidays.

Step 2: Estimate your income

Remember to match the time frame you've chosen for your budget. Stick to regular income like wages and savings interest and use after-tax figures if you can. If your work is irregular and you don't get the same amount each pay, try to estimate an amount close to what you are likely to get on average. Don't include irregular income like a tax refund or an annual Christmas bonus because you may not get it.

Step 3: Estimate your expenses

Remember to include loan and credit card repayments. And don't forget any savings you want to set aside. Payments into savings should count as expenses in your budget. This will make sure you don't spend the money on anything else.

Match your expenses to the timeframe you chose at Step 1. For example, a quarterly bill of $600 can be included as an expense of $100 in your fortnightly budget. If you do treat quarterly bills like this, you can put the money into a savings account each pay to draw out when the bills are due.

Step 4: Work out the difference

When you've completed the income and expenses tables, you can clearly see how much regular income you receive, and where your money goes. Subtract your total expenses from your total income to get your net result.

Step 5: Fine tune and plan

Is the result what you were expecting? Now is the time to revisit your estimates. Have you correctly converted income and expenditure to the time frame you are using?

Does your budget show you spending more than you earn? Is this what really happens to you? Do you find yourself reaching for the credit card regularly? Do you want to change this by cutting back on some of your extras?

Be realistic. Be careful not to make plans that you can't achieve. If you plan on achieving your goals by cutting out all your extras, chances are you won't succeed. Taking control of your money doesn't mean you have to restrict your budget to the bare necessities.

Step 6: Keep it up-to-date

Keep track of your expenses. Are they close to your estimates? Adjust your budget if you have to. You may occasionally be hit with an unexpected bill - for car repairs, for example. If you blow your budget in one period, see if you can make a temporary adjustment in the next to bring things back on track. If you change jobs or get a pay rise, re-do your income estimates. Once a year or so, it's a good idea to go through your budget and your plans from scratch.

Source: www.understandingmoney.gov.au