How do I make a monthly budget?

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While the average annual salary in New Zealand is often quoted at approaching NZ$100,000, it is perhaps more appropriate to look at the median salary. This is the mid-range salary and is currently around NZ$56,000 per annum. Obviously, income will vary significantly from person to person, family to family but the concept of creating a monthly budget is the same.

Making a monthly budget not only helps you identify where your money is going but also helps identify potential savings. If you don’t actively keep track of your spending habits you will likely be surprised when you review them!

How does a monthly budget help?

The obvious answer is that it will help you control your expenditure and ensure that you don’t spend more than you actually bring in. This can give you huge peace of mind which brings us on to the other area in which a monthly budget can be extremely helpful – mental health.

Financial stresses and strains are unfortunately an element of everyday life but they can have a huge impact on your personal life. It is imperative that you retain control of your finances, keep track of income and expenditure and maintain a broad understanding of your financial situation.

In a perfect world, we would all look to put away some savings each month to give ourselves a little “headroom” in the event of unforeseen expenses further down the line. This is not always possible but having control of your finances through a monthly budget is a useful alternative.

Elements of your monthly budget

It is important to be as detailed as possible when creating a monthly budget, especially in these challenging times. We have put together a list of weekly costs, monthly costs and annual cost for you to consider. Obviously, we all have very different lifestyles therefore not all of the costs listed will be relevant for everybody (and there may be others).


Weekly budget expenditure

The more traditional weekly budget expenditure tends to be in areas such as:-

• Groceries
• Transport
• Entertainment
• Other costs such as children’s pocket money

While some of these sections are very wide-ranging, it does give you an idea of traditional weekly budget expenditure.


Monthly budget expenditure

There are various elements of a household budget which are paid monthly and very often these tend to be amongst the higher elements of expenditure.

• Mortgage/rent
• Energy costs
• Phone
• Insurance
• Credit card/store card payments
• Debt repayments
• Banking fees
• Rental of goods

Slowly but surely you can see various elements of your household budget coming together, now we will take a look at annual costs.


Annual budget expenditure

When looking at annual budget expenditure, this will take in the likes of:-

• Rates
• House maintenance
• Vehicle upkeep
• Fees and subscriptions
• Medical costs
• Pet care costs
• Clothing/shoes
• Household goods such as washing machines, etc
• Holidays
• Birthdays, gifts, etc

As we mentioned above, the specific elements of a household budget will vary from home to home but the concept and the groups will be broadly similar. So, now we are aware of traditional weekly, monthly and annual expenditure, it is now time to consider what you can and cannot afford.

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Be honest with yourself

When looking to produce a household budget it is important to be honest with yourself. The first thing to consider is all elements of income. This may include traditional salary, pension and social security payments to name but a few. A useful starting point when looking at expenditure would be to look at past bank statements or even banking apps.

There are many smart banking apps which will create a monthly report highlighting the breakdown of expenditure on goods/services and even by company. If you have not yet used one of these banking apps you will find it very interesting. You will probably be shocked!

Avoid racking up debt

Unfortunately, in the modern era it can be very easy to rack up significant debt with an overdraft, personal loan or credit cards. If the balance on any of these finance tools is increasing month by month then you are overspending. Here at Crester Credit we speak with many people who ignore the continuous increase in their debts until it is too late. There is no point in for example paying out NZ$300 in debt repayments a month but increasing your debts by NZ$400 per month. This is before we even consider interest charges.

Your income and expenditure will change over time

When looking at household budget research on the Internet you will notice that both income and expenditure can vary significantly across different age groups. Therefore, it is important to recognise that over time your income and expenditure will change. Your spending in some areas will increase while it will decrease in others. As you approach retirement, you will likely see a reduction in your employment income and an increase in pension income.

Very often we know change is coming, maybe a change in our income or expenditure, therefore there may be an opportunity to plan ahead. If you foresee financial challenges on the horizon it is better to make spending cuts sooner rather than later. You may need additional assistance when the challenges arrive but you will be in a stronger financial position. Plan ahead for the storm; don’t wait for the storm to hit you!

Applying for finance

Whether you are looking to apply for a mortgage, personal loan or a debt consolidation loan, any lender will look to review your income and expenditure. There may be occasions where financial difficulties in the past have impacted your credit score. Here at Crester Credit we take our responsibilities extremely seriously and will only approve lending when it is in the best interest of the customer. Positioned between the traditional banks and the high interest payday lenders, we provide finance for those who have experienced credit rating issues.

Controlling your debts

The average household will have one or more of the following debt instruments:-

• Overdraft
• Credit card
Personal loan
• Car loan

Aside from a bank account overdraft, the majority of debt instruments will stipulate regular minimum monthly repayments. The interest rate will vary across these instruments, with credit cards regularly charging in excess of 20% interest per annum. Rates could be significantly higher if you have a chequered credit history. Consequently, we have spoken with many customers who have experienced difficulties covering each of the minimum monthly repayments. If you miss one repayment it can be difficult to recover.

Debt consolidation loans

Debt consolidation loans offer a means of bringing all of your debt under one roof with one minimum monthly repayment. This reduces the pressure of multiple minimum monthly repayments and also offers the opportunity to extend the loan duration. It is important to balance the natural pull towards paying-off your debt as soon as possible against a sensible approach to your finances, and what you can afford.

While an extension of your loan duration, compared to your outstanding debts, will see you pay more interest in total, monthly repayments should be more affordable. There is also the opportunity to introduce monthly overpayments which will help to pay down your debt much quicker but they are an option not an obligation. It is important that you act sooner rather than later if you see financial difficulties on the horizon, if your budget is getting ever tougher to stick to and you regularly see yourself “robbing Peter to pay Paul”.

Being realistic is the key

When looking at your budget, expenditure and potential changes on the horizon, it is imperative that you are realistic. If you can rein in your expenditure in the short-term, this may avoid serious financial issues further down the line and allow you to retain control of your budget. Unfortunately, not all financial challenges are flagged with many arriving unexpectedly. For example, if your budget is tight and your car needs repaired, do you have sufficient “headroom” to address this?

If you were unable to fix your vehicle, the potential knock-on effect to your employment and mobility may also have an impact on your short-term income. This is a simple but very striking example of how living month to month, with no surplus finance, can often create a recipe for disaster.

It can be tempting to create your monthly budget in your head, often making it up as you go along, but putting it down on paper is a sobering event. What can’t speak can’t lie – you will be facing your financial situation head on!

Stick to your budget!

There is no point going through the process of listing your income and expenditure if you are not going to stick to your budget. Maybe that family weekend vacation can wait until next month? Perhaps you can cut down on your entertainment expenses?

While we have focused on sticking to your budget, the budget should always, where possible, include a degree of entertainment and enjoyable activities. In a perfect world, we would all work to live, rather than live to work. However, on occasion we may need to tighten our belts, reduce our expenditure and experience a degree of short-term pain for long-term gain.

Your financial status is obviously paramount when creating a monthly budget, but you also need to consider both yours and your family’s mental health.


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