Newsflash … you don’t need an accountant or special software to set up your own budget. Start by looking at where you and your family are right now and where you want to be in the future.
We sat down with Noni Crawford, Director and Financial Adviser at leading Newport-based financial planning firm Hello Wealth to find out exactly how to create a budget that works (and is easy to follow!)
However, firstly, let’s debunk why you should have a budget.
Having a budget helps you to feel in control of your money, without the feeling of guilt when you overspend. A successful budget will set you up – allowing you to put money aside for big bills when they arrive and plan strategically to achieve your money goals in the short, medium and long term.
Step 1: Set your money goals
First, work out why you want to do a budget. This can help you to decide where you want your money to go.
What is my goal? It could be to stay on top of bills, save for emergencies, pay for your children’s education, or save for a holiday or a house deposit.
Step 2: See where your money goes
Having a clear picture of your regular expenses and spending habits will help you set up your budget.
A simple way to do this is by tracking your spending over a week, a fortnight or a month.
Step 3: Setting up the budget
Use how often you get paid as the timeframe for your budget. For example, if you get paid weekly, set up a weekly budget. Then, follow the steps below to set up each section correctly.
Pro tip: Set up your budget and save it online or use our excel budget spreadsheet. Try using our budget planner here.
- Record your income
Record how much money is coming in and when. If you don’t have a regular amount of income, work out an average amount.
Make a list of all money coming in, including:
- Amount of money
- Where it is from
- How often it is coming in (weekly, fortnightly, monthly or yearly)?
This money could come from your wages, pension, government benefit or payment, or income from investments.
- Add up your expenses
Record your regular expenses, including:
- Amount of money
- What is it for
- When expenses are due
A quick lesson on expenses, these ‘regular expenses’ are your ‘needs’ — the essential items you need to pay for to live. These include:
Fixed expenses, for example:
- Rent or mortgage payments
- Electricity, gas and phone bills
- Council rates
- Household expenses, like food and groceries
- Medical costs and insurance
- Transport costs, like car registration and public transport
- Family costs, like baby products, child care, school fees and sporting activities
Debt expenses, for example:
- Personal loan repayments
- Credit card payments
- Mortgage repayments
Unexpected expenses, for example:
- Car repairs and services
- Medical bills
- Extra school costs
- Pet costs
To make sure you’ve recorded all your expenses, look at your bills or bank statements. If you track your spending, use your list of transactions.
Having some savings can help create a safety net for unexpected expenses. Set a savings goal and work out how much you can save each payday.
Work out how long it will take you to reach your savings goal.
- Set up your spending limit
The money you have left after expenses and savings is your spending money. This money is for ‘wants’, such as entertainment, eating out and hobbies.
Make a plan for what you want to do with your spending money. This will help you to keep within your limit. Keep track of your spending so you always know how much you’ve got left. Schedule transfers of your savings and direct debits for your bills to automate your finances.
At Hello Wealth, we recommend setting up 3 bank accounts:
- One high-interest savings account for savings and;
- Two transaction accounts for spending and bills.
Step 4: Review, review, review
It is crucial to adjust your budget as things change. For example, if you find you can’t cover all your expenses, savings and spending, you may have to reduce your spending limit or change your savings goal.
For ideas to help reduce spending, see simple ways to save money here. Remember, you can also look for ways to increase your income, think side hustles.
Author, Noni Crawford is Director and Financial Adviser at leading Newport-based financial planning firm Hello Wealth. Hello Wealth delivers fresh, sophisticated financial planning incorporating the latest tech, service choice and transparent pricing.
Noni’s mission for all clients is to provide them with the tools they need to create financial freedom through tailored financial strategies.
Book your free 30 min Strategy Call with Noni HERE
Reproduced with the permission of ASIC’s MoneySmart Team. This article was originally published at https://moneysmart.gov.au/budgeting/how-to-do-a-budget
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