Money in, money out

What is budgeting? How can it help? Simple vs complex?

Budgeting means different things to different people. For some, unless you know where every cent is going, it isn’t really a budget. For others, having a general idea of where your money goes is enough. Overriding all of this is one simple fact… unless you create an approach that you can stick to over the long haul, it doesn’t matter how much or how little information is in it, your budget won’t be worth more than the paper it is written on (or in this modern age, the data it uses up!)

Cassie Wilkins, one of our Paraplanners, has put together 5 pro tips to help you create and stick to a budget, to help you feel more in control of your finances and your future.

First, though, let’s look at what a budget is. At its core, a budget simply tracks how much money you have coming in and how much goes out. There is a common saying ‘if you can measure it, you can manage it’. If you know, even at a high level, what is happening with your cashflow then you can plan – to make sure that you always have enough to cover the things that are important to you and, hopefully, create a savings pot to cover those rainy days. The way you approach your budget will vary depending on a number of factors including:

• Your general approach to organisation and information
• Your current and expected financial situation
• Your knowledge and confidence when it comes to financial matters

So let’s get into those tips.

1. Start by getting an understanding of where and how you spend and earn

Keeping a daily diary of everything spent and earned for a month or two can put you in a strong position to understand where your dollars are going. Once you see a pattern in money in and out, you might move to less detailed tracking. One thing to note with this approach is that you may have quarterly or annual expenses like utilities and car registration that need to be factored in.

2. Technology is your friend

The days of having to build complex spreadsheets or go through a shoebox of receipts are long gone. There are plenty of easy to use apps and websites which help you keep track of your budget. Many even have automated data feeds from your bank accounts, credit cards and even companies you spend money with. Some offer free ‘lite’ versions or trial periods so you can see what will work best for you. There are also tips and basic calculators on the Government’s Money Smart website

3. Only you know the best budget for you

How your budget is split will be different to others, impacted by things such as values, where you live and stability of income. As a guide, the average person or family spends around 60% of income on living expenses like food, rent/mortgage and bills. Remember, even if something is a want, rather than a need, if it’s important to you, then it should be included as a foundational element of your budget. Set your goals and if you need to cut down spending then you’ll have all the information you need to decide where it needs to come from.

4. Get everyone on the same page

As you are building your budget, including your housemates or family will make it much easier when it comes to sticking to the plan. It’s also a great way to teach kids about money fundamentals. If you share your income with others, you might like to allocate a certain amount each month that each person can spend or save however they wish, without having to report it back into the budget. Think of it like grown-up pocket money (but don’t spend it all on lollies!)

5. What to do when the going gets tough

Let’s face it, the last year has been tougher than usual for many households. The good news is that there is support available. If your work offers an employee assistance program (EAP) then you can access one of their financial counsellors. They can also connect you with other services. Many companies offer payment plans, particularly for larger bills like electricity. The key here is to contact them early, preferably before bills actually come due. Connect with Centrelink to see if there are benefits you could receive over the short or longer term. See if you can reduce the interest you are paying on any debt. Credit cards are at a much higher rate than personal and home loans and there are cards that offer lower rates or interest free periods. If you have a mortgage, look at the interest rate compared to other providers – often just calling your provider and asking for a reduction will lead to large savings in your monthly payments. Last but not least, reach out to friends and family. Even if they can’t help financially, they can support you emotionally and that is just as important when things are feeling overwhelming. Remember, it can be a bit of work to get started but being aware of your spending habits and what your relationship is with money puts you in the driver’s seat. That way you are in control and can make decisions that work for you both over the short and longer term.