The Herald talked to three experts about how to start, where a budget can go wrong and how to keep track of it. Photo / Supplied
The Government will open its books today to show Kiwis where it will spend its money in the next year.
While you might not have as many zeros on your income or expenditure line it serves as a timely reminder to check your own spending and make sure you will be on track.
The Herald talked to three experts about how to start, where a budget can go wrong and how to keep track of it.
Raewyn Fox, chief executive of the Federation of Family Budgeting Services says people need to start by looking back over what they have spent their money on over the last year.
While that might seem onerous she says a year is important because some expenses like school fees and insurance might only come in once a year.
"That might seem a lot to do initially but then you are just updating it."
Fox said it was important people consider how much the cost of things might go up in the next year.
That could include potential rent rises, food costs, power and other staples.
Some may be based on a best guess but Fox says it's better to overestimate and then have some money left over than to underestimate and have to miss out on something else.
Fox also recommends being very honest with yourself.
"It's easy to say 'I can get by on $50 a week.' But if you cut yourself too short you are only going to be miserable."
Once you have worked out your costs compare that to your income. Work out what you can cut back if there is a shortfall and start to think about your goals if there is a surplus.
"Think about your goals."
That could be going on a holiday or buying a new car this year or in the longer term buying a house or saving up to go down to one income if you plan to have a baby.
There are an increasing number of online tools to help people budget. The Federation and Sorted both have their own planning tools.
The banks also offer budgeting tools and these can help for ongoing tracking by downloading statements.
Fox recommends people check they are on track every time they get paid.
"It's a living document which you need to check every pay day."
"Once you get used to doing it, it's a 10-minute exercise."
Fox said the main thing which caused people to come unstuck was an unexpected event like a redundancy.
Insurance or savings are the best protection against shocks.
It's never too soon to start a budget, she said.
Even children who get pocket money can make a plan for how they will save and spend it.
• Use surpluses carefully - don't just blow it all
• Be realistic - it's better to overestimate the cost of something than to
underestimate
• don't forget the once-a-year costs
• disasters happen - fridges/washing machines break down, cars need new tyres and maintenance - put something aside to cover this.
Tom Hartmann, personal finance editor at the Commission for Financial Capability which runs sorted - the government's budgeting advice service, says you have got to run your money or it's going to end up running you.
"A budget is really just a tool to do that - it's your plan for your money.
"There is an army of marketers out there who have their own plans for it, so these days you need to have one of your own."
Hartmann said the best place to start was working out all of your incomings and regular outgoings - a budgeting tool like the free one on the sorted website can help you work through all these.
"Grab a pile of recent bank statements, bills, a cup of coffee, and make yourself comfortable, then get stuck in.
"It will help you see exactly where your money is going each week and if there are areas where you could cut back a little."
Hartmann said some expenses were more optional than others and it was important to think about needs and wants - those things you could do without if you had to.
"Beyond the most basic necessities, many things begin as something we'd like to have and then become a regular obligation, like a car payment.
"This is classic lifestyle inflation, where your regular costs swell to match whatever room you have in your budget. Funny that."
Hartmann said budgeting was not all about cutting out all wants.
"But keeping in mind which are optional expenses and which aren't helps if you'd like to adjust your money plans and do something else."
But a budget is just a starting point.
"The budget only describes what's happening now, not what you want to happen. So what's the plan? What's most important to you - what goals do you want to set and how much surplus can you find in your budget to reach your goals?"
• work out what your needs and wants are
• watch out for lifestyle creep
• It's okay to have wants in your budget - just make sure they are your priorities
Denise Smith, general manager of the Papakura Budgeting Service, said some of the biggest mistakes people make when it comes to budgeting is not being fully aware of their situation.
"Especially when going to borrow - take a look at your budget when you look at taking on credit to see if you can afford it."
She said a lot of people also failed to understand terms and conditions when it came to borrowing and their obligations if they missed a payment.
Smith said the proliferation of online lenders offering quick turnaround applications was not great for some people.
"It's fine for some but for others it's not really a good idea."
She said people should approach their bank first for a loan and if they are turned down think about why.
Smith said some people were afraid of doing a budget because of a fear of the unknown.
But she said doing a budget put people in control of their own finances.
"That is what a budget is about."
She said budgets needed to be realistic and take into expenses likes medical costs and children's trips for those with a family.
"It's important you plan ahead."
The biggest challenges to a budget were often the loss of a job or a rent increase but having a budget meant people could set up a contingency find and be better prepared when things went wrong.
• If you get into trouble get advice
• there's always a solution
• it's never too late to do something about your situation
OPINION: December is often the month in which we spend money like it’s confetti.