Fudge it or budget?

Most people see the word “budget” as synonymous with going without and living a boring life. But that’s a misunderstanding. Budgeting doesn’t take the whipped cream out of life. It simply means having the whipped cream you can afford. A budget is not a spending restriction—it’s a plan for managing your family income.

Don and Joanne’s friends considered them to be a successful couple. Don, a 35-year-old IT executive, received an annual salary of $140,000. Joanne worked as a nurse and their combined annual income exceeded $220,000. While they didn’t exactly “live it up”, they didn’t hesitate to pamper themselves either. They didn’t live extravagantly but they did indulge in regular dining out, clothing, holidays and other luxuries.

Financial problems? Unthinkable! However, reality struck and their financial situation worsened, causing stress and sleepless nights.

Don and Joanne were typical fiscal fudgers, unaware of their monthly expenses and unfortunately, not claiming full financial control. Their money flowed in and out, mirroring the tide, sometimes even faster.

Don and Joanne found budgeting to be the key to solving their financial problems. The only way they could maintain their standard of living was to understand, then alter their spending habits and control their spending. In biblical terms, Don and Joanne needed to be effective financial stewards of the resources that God had given them.

A budget isn’t a financial straitjacket; it’s a lifebelt, aiding in tracking income and expenses over time. When planning your fiscal future, don’t expect everything to fall into place immediately. Budgeting, like any other art, improves with experience. It’s about regulating income to meet known and anticipated expenses. Adhering to a family financial plan, a budget, instils discipline, controls spending, prevents waste and imparts financial order to family members, serving as a foundation for your children’s financial education.

Make realistic budget estimates to avoid discouragement. If the budget seems unbearable, adjust it promptly. Remember, a budget is an attempt to live within your means, not below your yearnings. Be cautious of advertising propaganda; say “no” and stick to your priorities.

Here are five simple steps to create your family budget:

step 1: identify your income

Now that you’ve decided to stop your fiscal fudging, start by identifying your income for the upcoming year. Collect all possible personal financial details, especially if you’ve been lax in tracking them—a common trait for fiscal fudgers. This might require some effort to reconstruct your financial history.

Income sources are typically straightforward, including wages, salaries, interest, dividends, business earnings and commissions. When recording income, categorise each source separately. Avoid lumping everything together. For wage and salary earners, consider net income—your gross salary or wage minus any tax payable. Keep in mind that tax is calculated after deductions, so maintaining records is crucial to maximise your net income.

If your income is irregular, assess your earnings from the past few months as a basis for budgeting. It’s wise to be conservative in your estimates. You can always make adjustments during your budget review.

step 2: track your spending

After figuring out your incoming money, the next step is understanding where it goes. Categorising expenses helps identify where you spend the most and where you can save. Common categories include food, education, utilities (council and water rates, electricity), insurance and housing (rent or loan repayments).

Don and Joanne prioritised honouring God with their income—tithing as an act of obedience and then a generous offering. Tithing is the practice of dedicating 10 per cent of your income to God. Offerings may be contributed to good causes that you have a passion for.

Their next step involved identifying expense categories, including housing, transportation, food, utilities, insurance, education, medical and healthcare, saving/investing and debt payments. Under each category, they listed relevant expenses. For utilities, it included electricity, water and natural gas. In the food category, they considered groceries as a fundamental expense, along with dining out, covering restaurant meals, work lunches and food deliveries.

Expenses can be fixed or variable. Fixed expenses stay constant monthly or quarterly like rent and loan payments. Other fixed costs encompass insurance (house, car, life, health) and school fees.

Variable expenses change and depend on daily choices. Groceries, petrol, clothing and entertainment fall under this category. For example, choosing a premium brand of cereal at the supermarket instead of a generic brand affects expenses. Variable costs may also involve discretionary spending, like buying electronics or furniture.

Here are some key points about your expenses to keep in mind:

• Variable expenses offer the best opportunity to cut back since they involve day-to-day choices.
• Estimate your expenses for the upcoming year based on past experience, adjusting for factors like inflation or changes in spending due to events like a second child attending school. Add a little extra to cover potential increases and round up your estimates. For example, if your motor vehicle expenses were $252.45, round up to $260 for simplicity.
• Keep an eye on your credit card debt; surprisingly, only one-in-five cardholders (22 per cent) know their debt and five per cent couldn’t say how much they owe.
• Be mindful of discretionary spending. Small, frequent expenses like takeaway coffee or meals can add up quickly. Monitoring and controlling these impulse purchases can lead to significant savings.

step 3: set your budget goals and develop your budget

Creating a family budget helps you understand and manage your finances better. Before starting your budget, set financial goals to stay motivated.

Don and Joanne listed short-and long-term goals. For first-time budgeters, short-term aims focused on the first year. If you’re more experienced, your short-term goals might span three years. Longer-term goals like buying a house or saving for retirement take time. Your goals can be flexible but identifying them can help motivate you to stick to your budget. For instance, cutting spending is easier when you know you’re saving for a holiday.

When setting goals, make them SMART: Specific, Measurable, Attainable, Realistic and Time Specific. This framework gives direction and focus to what’s important. An example of a SMART Goal is to save $30,000 by June 30, 2025, towards your first house deposit.

step 4: develop your budget

Once Don and Joanne gathered their financial information, they began to create their family budget. Plan for a year or break it down monthly to better track income and control spending.

Ensure your expenses don’t exceed your income for a balanced budget. If income surpasses expenses, it’s a surplus budget.

Sit down with your family to work on the budget and future financial plans. Utilise tools like Excel or budget apps for easy adjustments and updates.

Don and Joanne began their budget with a simple 15/60/15/10 breakdown, aligning with their needs, wants and goals.

Here’s a quick overview:

• 15 per cent for tithe and offerings
• 60 per cent for housing, bills, groceries and everyday needs
• 15 per cent for non-essentials like gifts, holidays and entertainment
• 10 per cent for savings and reducing debt

When creating your budget, consider using the 15/60/15/10 formula or adjust it to fit your needs. This formula is a starting point to guide your budgeting process. Analyse your expenses by percentage and modify the percentages to align with your targets. It’s wise to allocate a contingency expense to cover unexpected variations or unforeseen costs.

Remember, your first budget may not be perfect. Discuss it within your family and a trusted friend and seek guidance through prayer.

Providing more details gives a better understanding of your spending. For example, if you’re buying a home, housing expenses include loan repayments, council and water rates, insurance and repairs. Transportation expenses include car payments, fuel, registration and insurance, and service and repairs.

If you choose to prioritise tithing and offerings, be encouraged by Jesus’ words: “Seek the Kingdom of God above all else, and live righteously, and he will give you everything you need” (Matthew 6:33, NLT). Put God first and He promises to provide for your essentials—food, shelter and clothing.

step 5: review and adjust

The purpose of budgeting is to compare your actual spending with your planned income and expenses. After completing your budget, be flexible as things may change. A budget is a guide, not set in stone.

Stay disciplined. Some start with good intentions but slip back into old habits. Remember, your budget is your financial lifebelt. Re-evaluate monthly, adjusting for actual expenses and income.

Don’t be discouraged at the start. Slowly adapt your lifestyle. Practise self-control. Budgeting builds financial awareness, unlike unaware spending habits. As you get used to it, budgeting becomes automatic.