A budget can help you get rid of debt, save towards a goal and generally reduce the stress of worrying about whether you have the money you need available to you. Preparing a budgeting takes a little bit of time and organisation; abiding by it will take some discipline.
Obviously, the idea is to try to find ways to cut back but don’t make your budget so tough you can’t stick to it. The key is to understand where your money is going and then take control of it.
Having a goal makes saving money so much easier. You may want to begin by creating a timeline for achieving your goals to help keep you on track, and then follow these tips.
Start by choosing a time period to track your ingoings and outgoings. For instance, if you’re paid monthly it’s therefore probably going to be easiest to track your spending over a monthly time frame.
Next, tally up all of your income from different sources for that period. This may include net incomes from salaries, bonuses, dividends, rental property income and Government assistance. Then look at your expenses and when they are due. I break expenses down into fixed costs (those that remain the same from period-to-period) and variable costs (those that change).
Your fixed expenses will include things like loan and credit repayments, rent, insurances and phone plans. I have all of my fixed expenses set up as monthly direct debits so that they come straight out of my savings account, there’s no chance I will forget to pay them and I can track them digitally. Ensure that there is always adequate money in the account so as not to incur any unnecessary dishonour fees.
Variable costs are things you have to pay each month/week, but which may vary in cost each time. They can be broken down into ‘essentials’ – things that cannot be avoided such as electricity bills and transport – and the ‘nice-to-haves’ like entertainment.
Your overall net position will be your total income less your total expenses. Hopefully, this will be in a surplus position but it may not be. And that’s ok, because the point of this exercise is to find ways to improve your financial position.
Identify areas for improvement
Now that everything is down on paper, see if you can find where you are overspending. Ask yourself:
- Am I paying enough off my debt? Credit cards generally charge a very high rate of interest – can you find a credit card offering a zero interest period and pay it off within that time frame? Can I consolidate my debts and pay them down quicker with a mortgage or a personal loan at a lower rate of interest? Canstar is a fantastic web resource for comparing loans.
- When was the last time I reviewed my pay TV, internet and phone plans? Is there an opportunity to downgrade my plans to save some money?
- Have I reviewed my insurance providers lately? comparethemarket.com.au can help to weigh up many different types of insurance.
- Am I spending more than I need to on transport? Am I driving too much, paying too much in parking, tolls, taxis? Is public transport a better alternative?
- Am I actually going to use that gym membership? Either start hauling ass to the gym or get rid of it!
- How much can I save on the things I like, but don’t really need? Do I really need to order takeout twice a week? Must I really have a fortnightly manicure? Try to set yourself a limit on how much to spend on these non-essential items each period. Little things, like just buying one coffee a day, can set you back quite a lot of money.
Once you have identified how much surplus income you have, you will need to put it somewhere. There are many different options available such as high interest savings account, term deposits, managed funds and shares. The most suitable option will depend on your goals, your risk tolerance and your investment timeframe. You should speak to a financial adviser to help you work out what’s best for you.
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