7 tips to help you sort out your budget
How does feeling confident about your finances sound? Make budgeting part of your healthy habits to boost your personal wellbeing. So you can understand more, here are some tips to help you sort out your budget.
Curious how you can manage your money and create a personal budget? A personal money plan helps put you in control when it comes to allocating funds to cover regular expenses, unexpected costs, and help you achieve your financial goals. Here’s 7 tips to get you started.
Tip 1: Be clear on why you are budgeting
Chances are you’ve heard about the importance of budgeting. But, are you clear on why budgeting is important for you? Think of a budget as a map or a personal GPS that can help you get from Point A to Point B, and helps you get back on track if you are lost along the way. A budget can help you achieve your financial and lifestyle goals, enabling you to make considered choices about how you spend your money. It can help you allocate your spending to live within your means and work towards achieving goals like buying a new car or saving for a holiday abroad.
To motivate yourself to try this new money habit, try completing the following sentence “if I create and stick to a budget, I will be able to….”
Tip 2: Track spending for a month
Taking small manageable steps can help you to develop a new behaviour or habit. To help you get started with budgeting – try tracking everything you spend for a short period of time. Why? It can give you insights into how you spend money now and may highlight how spending even small amounts of money all adds up over time. It may also reveal those areas of spending that otherwise go unchecked, such as paying for subscriptions to multiple digital streaming services, that you may not use.
Tip 3: Adopt the Three-Category approach to Budgeting
One of the keys to a successful budget is to keep it simple.
First, you’ll need to know how much is coming in – through your after-tax income from work or interest income from your savings. Then you need to see where your money is going out – your expenses. When you look at your expenses, there are three important categories:
1. Commitments: payments you have very little control over as they represent a legal obligation to pay, such as your rent or insurance payments.
2. Living expenses: include things like your utility bills for electricity, water or money spent on food.
3. Lifestyle expenses: Everything besides your commitments and living expenses falls into this third category. It represents expenses that we can influence with our behaviours. It includes money you spend on fashion and entertainment.
Don’t make it more complex than works for you.
The Three Category Budget is simple to implement and with the right action can have a positive impact on your financial wellbeing.
Tip 4: Planning is fine – action is divine
Once you've set goals, identified your income and expenses, and considered areas of your budget, like savings, you would like to manage – now it’s time to put your plan into action.
Use the insights from tracking your spending and adopting the Three Category Budget to pick some areas you would like to improve upon.
Tip 5: Apply the pay yourself first strategy
Regular saving is one of the most powerful things you can do to become more financially resilient and help you achieve your lifestyle and financial goals. One of best ways to do this is to pay yourself first. In other words, save first and then spend. Allocate your savings into a separate savings account, keeping it separate from your spending money.
Tip 6: Plan for the unexpected
Some call it ‘saving for a rainy day’, others ‘mojo money’, but it’s essentially planning for the unexpected by having an emergency fund set aside. This is the money to give you peace of mind that if something unexpected crops up – the car break down, you chip your front tooth, or the dog swallows your phone - then you’re able to deal with it without the additional impact of a financial disaster as well. This isn’t a fund that you’ll continue to grow. Choose an amount that will cover your lifestyle and an allowance for mishaps and once you have that amount set aside continue to save for your other goals.
Tip 7: Plug the money leaks
One of the simplest things you can do to help you stick to your budget is to plug your ‘money leaks’. Money leaks are those regular small lifestyle expenses that add up quickly over time, often without you realising it. Tracking your spending will help to identify things like your daily coffee fix or regular take-away meals … things that are nice to have but that could be preventing you from achieving other financial goals. Once you identify your leaks, you can then make a choice as to whether you want to change some of those habits and plug the leaks.
This article is from Westpac’s financial education specialists, continuing the legacy of Sir Alfred Davidson in helping you create a better financial future
Things you should know
This information does not take into account your personal circumstances and is general in nature. It is intended as an overview only and it should not be considered a comprehensive statement on any matter or relied upon as such.