Get your hands on a copy of your bank statements for say the last three to six months. Analyse what you spent your money on starting with standing orders, direct debits and other types of spending from cash, to retail therapy to fun. Put this information into columns on a spreadsheet or just on an ordinary piece of paper if you prefer not to use Excel.
Check your overheads first of all, especially those which are compulsory. There’s no way round paying for your rent/mortgage, electricity, gas, water, council tax, service charges (if you live in a flat) and the finance costs of your debt but everything else and how much you spend on it is discretionary i.e. a matter of choice.
Work out how low you can get your overheads and find a way to pay that into a bank account each month from which your bills are paid. Try to stop using credit cards at all, and live within your means. Keep an eye on outgoings to make sure your bills are being paid on time either once a month or weekly if things are tight or daily if things are very close to the wire.
Use this historic information to decide what you are going to spend for the next 3-6 months, make a plan and resolve to stick to it like glue. Make that challenge fun. You can build anything you like into your own budget. Your haircut may be my luxury, my Ocado deliveries may be your unnecessary luxury etc. If you can afford it, you can have it. But your challenge might be to see what you will choose to do without for the duration of your budgeting experiment.
Remember to budget for savings, contingencies (things which might go wrong with the car or the boiler, don’t manifest them, just allow for the possibility like being your own insurer effectively) and give yourself a bonus – a prize when you achieve your goal. I like 10% for tithing too if there’s room. Aim to build up a surplus of income over expenditure in a deposit account.
As you experiment with this and introduce some calm systems and a little bit of self-discipline and investigate where you are being profligate without thinking and start to plug the needless waste and use your money carefully and prosperously with choice, you’ll enjoy it and get good at it and start to teach your kids how to do it too. Those who demonstrate they know how to look after their money, more is given.
Likely leaks? Check what you are doing with cash. If you use a debit card this is all self-documented on your bank statements. If you need to use cash for whatever reason, write down in a separate little notebook where that’s going and add that into your columns too. If you use credit cards – stop it! Or use one to a budget and clear it every month.
Revise your budget as you go along when you work out what you forgot to include! Your budget can be a living document you make pals with rather than fight with as it supports you on your journey to financial freedom.
Living within your means is Step One called Financial Integrity. Keeping your overheads as low as possible facilitates you getting out of the Rat Race faster – see Robert Kiyosaki’s book Rich Dad Poor Dad and his Cashflow 101 game. T. Harv Eker’s book and his workshops of the same name Secrets of the Millionaire Mind put forward other ways to do budgeting, involving jars (if memory serves!).