Money - 8 May, 2019

Budgeting 101: How to build a better budget

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If you’re feeling a bit in over your head financially, it might be time to start a budget. Whether you’re trying to repay debts or pump up your savings, budgeting is the key to success. We spoke to Talking Money founder and financial coach Melissa Meagher about how to start and stick to a budget.

Step 1: List the ins and outs

The absolute first step in creating a budget is sitting down and logging your fixed costs: that is everything you know for certain will be going in and out of your account.

For incomings, you might traditionally include your salary, and outgoings will be things like phone bills, utilities, rent, mortgage repayments, school fees, car registration and insurance.

This will help you see the big picture of your financial life and foster more awareness in this area you’re trying to control. This will also come in handy for Step 4!

Don’t know where to start? The Australian Securities and Investments Commission (ASIC) has a helpful budget planner tool.

Step 2: Note your spending habits

This is the step where you pinpoint necessary and, more importantly, unnecessary spending.

At the end of each day, write down every cent you spent and then repeat this daily for 30 days.

“There’s no right or wrong or good or bad,” Melissa reassured. “It’s just about being conscious of where you’re spending your money and understanding what’s in your money pot. If you want to do something different, like reduce debt or build wealth or put money away for holidays, something has to be taken from that pot to be able to do that. So, you first need to understand what’s in the pot. Be realistic and clear on those habits.”

Melissa recommends the ASIC TrackMySpend app for making sure this daily practice doesn’t fall behind.

Step 3: Assign your pay

How you divvy up each pay cheque will depend on what your financial situation calls for. You might be saving for a house deposit or holiday, paying off a mortgage, or trying to reduce your credit card spending.

“When [my clients] work out their fixed costs, I then work out what those are annually. Then, say they get paid fortnightly, I divide that annual figure by 26 [fortnights in a year]. I then get them to open up a bills account, and that fortnightly figure goes straight into that account when their pay comes in,” she explained.

This will leave most of you with three bank accounts: one for spending, one for saving and one for bills.

After you’ve put the bills/fixed cost money in your bills account, you can then think about how much you can reasonably put in the savings and spending categories.

Melissa finds this particularly helpful for those who struggle to keep a lid on spending. Getting the cash out of sight and out of mind will remind you of your spending limits.


Step 4: Look for savings

Drafting a budget or financial log really gives you a chance to pinpoint opportunities to save and help you work towards your overall goal.

Melissa says a big opportunity often lies with your insurance or phone provider.

“You can research the market if you want, but it might be easiest to just call your current provider,” she noted. “Most of the time they’ll give you an incentive to stay with them.”

Step 5: Keep it up

While it sounds easier said than done, Melissa has found that once people start this process, they tend to feel more financially aware and empowered, motivating them to keep up their new good habits.

“People think they won’t like doing this, and sometimes they just don’t want to know. But [creating a budget] really empowers people because it lets them know their current position and that allows them to move forward and make educated and informed decisions about their money,” she said.

Essentially, it really pays off to do the first few steps thoroughly at least once.

Like most areas of self-discipline, from exercise to eating healthy to mental health care, budgeting and saving is all about forming good habits.

Words by Rebecca Mitchell.

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