Panicking about rising costs? How to build a budget to stay afloat

If you’re spending too much to pay your higher loan repayments from your existing income, you need to find out now. You can then start taking diversionary measures to increase your income, meet your expenses, or start negotiating with creditors.

No one saw this cost of living crisis coming. No one knows how long this will last.

The one thing I do know is that tracking my own expenses and having a solid grasp of my monthly and yearly expenses gives me the confidence of knowing that I can survive anything the Reserve Bank throws at me.

So if you’re freaking out about rising rents, mortgage costs, or just the general squeeze on living expenses, here’s how you can do the same:

Step 1. Go to my website and download my free annual budget spreadsheet (available in Excel and PDF versions). My book “Money with Jess” goes into even more detail, but the worksheet gives you a checklist of expenses to consider when developing your budget.

2nd step. List your sources of income on the annual budget worksheet, including salary, business income, dividends, estimated net rental returns, child support, etc. you have to pay and sacrifice any salary, as super, you make. This is your “disposable income”. If you have variable or irregular income, you can estimate by taking the average of previous years or the minimum you expect each month.

Step 3. Try to estimate your annual expenses in each category of the spreadsheet. Spoiler alert: if this is your first time doing this, you’ll be wrong. But do not despair: the treasurers all the time federal budgets that are false! And they are still very proud of themselves. The goal is to give you a reference to refer to later when you start tracking your real spend to see where your money is really going.

Step 4. Commit to tracking your spending for at least a week, preferably an entire month. I write everything manually with a pen (and highlighters) on my Spending Tracker paper because studies have shown this leads to better retention of information. I also find it fun and I think the manual process slows things down so you are more observant. But you do. Others have adapted my spreadsheets into their own number spreadsheets. I’ve never found an expense tracking app that I like, but if you have one, use it!

Step 5. Be aware of big, one-time expenses that only hit your budget once a year or quarterly, such as car registration and maintenance, condo fees, water bills, and municipal rates. Also consider larger discretionary purchases that rarely occur, such as birthday gifts, Christmas spending, and vacations. I have set up “future funds” – or “sinking funds” – to set aside a little each month to make sure I am covered for these when they arise. A future fund can be as simple as a piece of paper on which you allocate some of your money sitting in an account (like mortgage compensation) for some purpose. Or, you can actually set up multiple bank accounts for each fund (I don’t because I think it mentally locks you into wanting to stick with one lender when you should be looking for a better deal).

Step 6. At the end of your tracking month, prepare a one-page summary of all your monthly inflows and outflows. Calculate your monthly surplus or deficit, which will be your total disposable income minus your total expenses (including your provisions for larger expenses that fall outside the month). Are you in surplus or in deficit?

Step 7. Now go to the MoneySmart Mortgage Calculator and run scenarios for your 5% or 6% interest mortgage costs. If you’re concerned about your ability to meet repayments, call the National Debt Helpline on 1800 007 007 (think James Bond!). They can help you negotiate with banks and other creditors regarding your bills. If things are manageable but seem tight, now is the time to start identifying chop expenses or ways to increase your income.

Unprecedented times may call for unprecedented measures, like setting a budget to help you control rising costs. Good luck there.

Jessica Irvine is the author of the book Money with Jess: Your Ultimate Guide to Household Budgeting and co-host of the new podcast It All Adds Up. You can follow Jess’ other financial adventures and see her budget on Instagram @moneywithjess and sign up to receive her weekly email newsletter.

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