Trying to save money, feed your family and enjoy life without a good budget is like running a marathon without any training. Making a realistic, comprehensive budget is the single best way to take control over your finances.
In essence, a budget is simply a way to easily see what is coming into your bank account and what is going out but, in practice, it can feel like so much more. By making your financial situation transparent, you can identify and plug leaks, start eliminating debt and more effectively save for your future goals.
Getting Your Budget Ready
Take a look over your finances and Use an online budget planner to get your head around your finances, focusing on whatever time period makes the most sense to you – weekly, fortnightly, or monthly.
Work Out Where You Stand
Assuming there hasn’t been any major changes to your income and lifestyle, you should be able to predict future income and costs fairly well by looking at money coming in and going out over the last year. Look at bank statements, bills, credit card statements, receipts and so on to work out your regular payments and spending habits, especially the bad ones.
That will give you your outgoing expenses for a year, which can be divided by 12 or 52 to get monthly or weekly costs. Next, add in all the money you will be paid or will receive over the time period. Include regular and casual work, any government benefits, money from investments and so on. If your income is unstable, make the best estimate based on previous earnings.
Once it’s all laid out in front of you, you can prioritise your spending more. When working out your money priorities, think about which items you need for your basic living expenses and which are extras or things you could maybe do without if you needed to save some money.
This will also help you identify how much to put away each pay period for recurring costs like electricity or phone bills. You’ll also be able to keep on top of spending by checking your budget before heading to the shops and giving yourself a maximum spend based on what’s really available, rather than your bank balance alone.
If you are trying to save money, look at your budget and find ways to cut back on the extras. Don’t cut all fun out of your life – that just makes you more likely to abandon saving altogether. Once you have all your essential expenses covered and have set a budget for leisure spending, the rest can go into savings.
The best way to save is to put 10-20% of your money into a separate savings account as soon as you’re paid before you get the chance to spend it. If you receive a bonus, special payment, or tax refund, consider putting all of that money straight into savings, or else inverting the percentage above – keeping 10-20% to spend and saving the rest.
Diversify Your Savings
Instead of just having one savings account where all your money goes consider splitting your savings. For example, you could put a third into an emergency savings fund, a third into your super, and a third into saving for a specific goal like a trip or a car. Once you’ve built your savings up, you could also start putting some money into higher return investments to really grow your wealth.
It’s a good idea to redo your budget every 3 to 6 months to make sure it reflects your current income, spending habits, and what you want to achieve. Once you are comfortable with using and sticking to a budget, you can update it less frequently, like once a year.
You will probably also want to refresh your budget when there are significant changes to your income or expenses, like getting or losing a job and buying or selling a car or house, the extra cost of expanding your family, or managing illnesses. The list goes on and it’s best to factor these life moments into your budget.
If you need any help with creating and maintaining your budget, Kaboodle Finance is here to help. We can help you look at options such as debt consolidation, a home loan refinance or refer you to a financial advisor to help you further. Our team is dedicated to delivering a great outcome so Call 1800 KABOODLE today.