Budgeting basics – my tips and tricks
The number one rule to financial success: spend less than you earn. The best way to do that is to keep track of what you spend and sticking to it – i see you over there eyeing off that new Apple Watch. A budget is going to give you an action plan and clear picture of where your money is ending up each month. Budgeting will help you achieve the goals you’re working toward—whether that’s getting out of debt, saving for a home, or just trying to keep your grocery bill from getting out of hand.
Everybody [who wasn’t born into an incredibly wealthy family] has, at some point, had to sit down and write up a budget. Believe it or not – budgeting actually doesn’t come natural to most people. It’s a skill that takes practice, patience and a damn good template. During my 30 years in the financial services industry, you could say I’ve probably helped with a few budgets. So, instead of you all having to go through that, I’ve put together a small list of my budgeting tips and tricks that i learnt along the way:
Start from scratch
If you’re reading this, i’m going to assume your current budget isn’t working for you as well as you had hoped. Wipe the slate clean and start again – throw away that old template [or the budget note in your phone]. Start with the basics – how much do you spend on bills every month? rent? other living expenses? How much would you like to save vs spend monthly [click here for information on the 50/30/20 rule]? How much are you looking to save/invest? and what’s your deadline?
Now that you’ve categorised and divided up your money, you’ve got a relatively good foundation to build a more tailored budget.
Account for every dollar
Make sure you account for every. single. dollar. If you work full time, check your payslips and use your after tax figure to base your budget off of. If you work casual or part-time, use your absolute base figure [your minimum hours] or use the average from the past two months. This may sound incredibly cautious, but it isn’t, it allows you keep a very precise track of where all of your money will be going. Some people do OK with reverse budgeting, but for the majority of us, splitting your exact [or exact combined] pay into categories is the best way you ensure every dollar is accounted for.
It’s called the zero-based budget. Now that doesn’t mean you have zero dollars in your bank account. It just means your income minus all of your expenses equals zero.
Focus on what’s important
When most of us think of budgeting, we think of the basics — rent, food, utilities — then we go straight to “how much can I spend on me?”. When this happens, we need to take a step back and think about whats important. Our minds often trick us into prioritising our wants over needs. As you tailor your budget to your goals, think about your physiological needs [food, clothing, shelter], those are the most important, followed closely by safety [insurance, utilities], and so on, down to the luxuries, which are the least important [yes, the LEAST! That handbag can wait, your internet bill cannot]. Think of it this way – true wealth isn’t about having stuff, it’s about having financial freedom and the ability to do what you want with your life.
Prioritise Your Debt
If you’ve racked up some debt over the years, your budget needs some extra TLC. Whether you’re utterly broke [it’s OK – we’ve all been there], living pay to pay, or doing alright, you should still prioritise getting out of any debt you have. So make sure you make that as PRIORITY #1 in your budget. Sink any extra funds into reducing that debt, you’ll thank me later.
Keep track of your budget
There are a billion budgeting tools out there. What works for you may be different than what works for me, so think about how you learn and where your weaknesses are. Maybe it’s a program like Pocketbook that tracks automatically tracks your spending, or a bank account with an inbuilt goal tracker [Like CBA’s Commbank app], or maybe it’s using the M Finance template that we attached at the bottom of this blog [Yep – that’s how much we love all of you]. Don’t be afraid to try a few different strategies until you find your budgeting ‘match made in heaven’. If you find something isn’t working for you, try something else — but make sure it isn’t your motivation that’s lacking, rather than your chosen tool.
Use Separate Accounts
So, for this part, i’m taking some inspiration from the Barefoot investor himself. If you have trouble sticking to a budget when your money is all lumped together [like my daughter does], consider putting the different categories of money into seperate accounts. For example, have a savings account for your savings, one for your emergency funds, one for fixed expenses [your phone bill, monthly direct debts etc], and a fortnightly spending account [which includes anything from groceries to “fun”]. That way, you only see the money that you can spend, without having to think about what’s coming up next.
Give Yourself Some Wiggle Room
A phrase I live by [and a phrase my children are tired of hearing – but alas, here it is anyway], “everything in moderation.”
If you budget too meticulously, it’s only going to end up stressing you out, especially if something changes – and then it’ll probably fail. Give yourself some reasonable expectations, over-exaggerate expenses, make sure you have an emergency fund, and don’t forget to budget some money for YOU! If you’re the type that splurges, maybe you need to put aside some ‘splurge’ money within your budget. Whatever you do, don’t neglect the fun — and give yourself some wiggle room for those unexpected situations [e.g. Your hubby forgets to turn off the heater before going away for a long weekend and leaves it on the whole time – grrrr].
Adjust your budget as your situation/goals change
Chances are, you probably won’t get your budget exactly right the first time. If, after a few months, you find that it needs some tweaking, tweak away! Even if you do get it right the first time, life is constantly changing, which means changes in your budget are a must. Going back to study at university? Obviously you need to start over to budget for that. Getting a raise, promotion or a pay cut? You’ll need to tweak accordingly. You’re pregnant? Congratulations!! – But remember, children cost a lot, so budget as early as possible. Everyone’s budget is different, just as everyones life is different and ever changing.
Stick to it!
Lastly — and this is the hardest part for most — you have to stick with it. If you put all this work into creating a budget and don’t keep up with it, well, obviously all that work was for absolutely nothing. Keep track of it, keep tweaking it to suit your needs, wait 48 hours [with a lot of thought] before any big purchases and most importantly, accept that sometimes you’ll blow some of it – and that’s OK [within reason!]. The best way to ensure your budget is successful, is to have a healthy relationship with money, and not to let it stress you out too much. If you can manage that, you’ll be fine!
As promised, here is our trusty, customised M Finance budget template. We’ve been using this template for many moons with hundreds of clients.
P.S – please remember, we’re here to help! If you’re still feeling lost or want to sit down and have someone help you with writing up your budget – call us on either 0412411823 or (08) 9523 8414.
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