Spending less than we make is often cited as the most important personal finance goal. It helps us get out of debt, save for emergencies, and stash money away for retirement. It's the primary habit that enables us to achieve some level of financial freedom.
We’ve all heard about how ‘every little bit counts’ when it comes to money, and yes its somewhat cliché but its also very true when it comes to budgeting. Making little changes can make a big difference.
Starting a budget is much easier than it seems, especially with the variety of tools we have today. Before you set up your budget, take a look at these top 10 tips and tricks to help get you started.
1. Understand the Goal
The goal of a budget is not to track every cent we spend. That's certainly one way to budget, but it's not the goal. In fact, one can know where all of their money is going and still not have an effective budget.
The goal of budgeting is to help us control our spending so that we can spend less than we make and focus our spending on what matters most to us.
2. Track income & expenses
When devising a successful budgeting plan, you need to know how much is coming in and how much is going out. Track your income and expenditure for a week or more to spot the trends. You can do this with a free app like ASIC’s MoneySmart, or you can do it on a spreadsheet on your computer.
Ensure you use online banking to review your bank statements for most accurate figures. Break up your outgoings into categories such as fixed expenses (like the mortgage or rent), utilities, leisure and entertainment, and essential groceries. ASIC’s free budget planner can help get you started.
3. Outline your budget
The next step is to write out your budgeting plan. Use the same categories for tracking your expenses and outgoings to project how much you’ll be spending. Use these spending projections to guide your outgoings and spending for the coming week, fortnight, or month.
Make sure you plan for savings. Decide how much you’ll save from each pay day and have it automatically paid into a high-interest savings account or off-set account (if you have a mortgage). If you’re not saving enough to meet your goals, take a step back and check your budget to see where you can cut back.
4. Establish a savings plan & goals
Regular saving is the most powerful thing you can do to achieve your financial and lifestyle goals. Commit to saving 10, 20, 30 percent, or more of your income. Think of it as paying yourself.
It helps to have a purpose for your savings, whether it’s a for an emergency, for a holiday, a new car, or a big wedding.
5. Review and update forecasts
Allowing your budget to go out of date is a common pitfall. As your situation changes, remember to review and update the projections in your budget plan. You might get a pay upgrade, welcome a new addition to the family, or refinance the home mortgage. Anything that changes your income and expenditure merits adjustments in your budget plan.
By keeping your budget plan up to date, you’re more likely to follow it and reach your goals.
6. Set new goals
As you achieve a goal, remember to set new ones so you always have something to move towards. If you’ve successfully saved up for a $10,000 emergency fund, it could be a great time to work towards saving for a holiday or new car.
7. Try the 50/20/30 plan
Complexity is another common drawback to budgeting. For some, the idea of a budget with a long column of categories is too complicated to maintain. If this is true for you, try the 50/20/30 plan.
This is an easy structure which has you spending 50 per cent of your earnings on necessities, saving 20 percent, and using the 30 percent for your lifestyle choices. This plan can be a great starting point for those struggling to decide just how much they should spend on individual budget categories.
8. Or the 3-category budget plan might work better
Another popular strategy is the 3-category budget. As opposed to tracking every cent you spend, choose 3 categories you’re most likely to overspend in and track only these. For example, if you spend too much on clothing and accessories, eating out, and alcohol, focus your effort on these areas and cut back there.
9. Use the right tools
Sometimes people plan their budgets only to fail because they don’t have the right tools. There is no single best budgeting application. What works best for one person might not work best for somebody else.
Yet, there are several really good budgeting tools online that are either free or very inexpensive. Find the best tools – whether it’s an app linked to your bank accounts or an Excel spreadsheet – find what works best for you and your lifestyle.
10. Staying motivated
It’s you and you alone that’s in charge of your finances, so make sure you stay on track and motivated to follow your budget. Celebrate your wins, regularly remind yourself of why you’re saving, and review your goals to remind yourself why it’s all worth it.
A budget plan is an essential tool that can help you achieve your lifestyle and wealth-building goals. It’s not always easy to keep to a budget plan, and life can throw you curveballs.
Talking through your financial and lifestyle goals can help paint a clearer picture of what you're trying to achieve, and a roadmap will help with a plan on how you’re actually going to get there.
Contact us today for a chat and let’s see if we can’t take your budget planning to the next level.