Were you taught anything about money or budgeting at school?
Most of us were taught a lot about geography but little or nothing about money management or how to make it work for us.
A recent study by UBank revealed that a massive 86% of Australians don’t know how much money they are spending every month. The research also showed that only 28% of Australians actively use financial management/budgeting tools and 31% say they have not used any but think it would be a good idea.
Further to these statistics, 20% of us do not even put money aside even for standard bills, like insurances, council rates or even our monthly home loan!
In this article, we discuss why a budget is so important and how to implement a successful budget.
Let’s face it, budgets suck. Unfortunately though, if you want to be successful, you’re going to need one as they are a very important part of understanding and managing your finances.
It is important to do a budget for 12 months which covers the main spending patterns of your lifestyle. These include groceries, clothing, insurance, car maintenance, phones, electricity, gas, rates and home loan payments and so on.
Money should also be made available for leisure activities too, as we believe in a balance. Life isn’t just about budgeting and getting by. There should exist a balance between having systems and processes in place, having support and accountability as well as enjoying it! That all sounds logical and easy, but of course it isn't easy to put in to practice. But more about this later.
It’s essential to recognise your individual goals for your finances. These goals may include:
Reducing your home loan
Paying off you home years earlier
Building home extensions or renovations
Buying a home
Purchasing an investment property
Upgrading your car
Creating a plan for retirement
So how do you create an effective budget?
Understand your spending
Having a clear understanding of where your money goes is the best start to creating your spending plan.
Going through your spending over the last month will paint a good picture of what your expenses are, such as rent, your phone bill, Netflix subscription, gym fees etc, plus all the other things you tend to spend money on, such as coffees, groceries, clothing etc.
You can do this manually yourself by looking through your bank transactions online and writing it down, or you can do it with the help of one of the transaction tracking apps, such as Pocketbook, Moneysoft, or even your bank’s app (depending on your bank).
Put it into a plan
There are some simple, free to use budgeting tools available, such as the one found at moneysmart.gov.au, our comprehensive budget template, or most of the spending tracking apps mentioned earlier have the ability to set a budget.
Whichever method you choose to use, be clear on which key expenses you need to plan for. You should have identified during your ‘understand your spending’ stage.
At that point, you may have picked up on some wasteful areas of spending. You might have noticed a subscription you don’t use anymore, or realised you’ve bought things you didn’t even use.
The idea isn’t to scrape everything off of your spending plan to a point where you aren’t enjoying your life, rather to identify where you could cut spending without really noticing any difference to your life.
You can start to ask yourself questions like, “do I really need it?”, “can this money go towards reducing debt and getting me closer to my goals?”, and “Which decision, will ultimately make my life better?”
Once you think you have your spending plan set right, you just need to stick to it! Sounds easy, right?
Automate as much of your banking as you possibly can, so that it is one less thing to worry about in life. You can set up automatic transfers into your mortgage, your savings accounts and as always recommend, you can even set up an automatic sweep to pay off your credit card in full at the end of every month. Setting up automatic payments for your electricity, gas, water rates, and so on, is always a great thing to do as this reduces stress and your bills are always paid on time. You will always have a chance to check your bill before the payment comes out of your account and some companies even offer good discounts by paying your bill on time.
Think about it
Before purchasing anything, whether it be a new car, a computer or even a pet, investigate all associated costs and include them in your budget, then make the calculations to see how this decision effects your overall budget.
Often when we buy things we discover afterwards that there are all these ‘accessories’ that we need to use them! So the initial cost now ends up being half as much again. But we bought the item so we ‘have’ to use now! That’s called rationalisation (we tell ourselves rational-lies)!
This also applies to larger purchases – being an investment property or starting a share portfolio.
It is important to know all the ongoing costs before committing your self.
Become accountable with a coach
Are you are like most people that have actually used a budget before but found that you followed it for a little while and then after a few months forgot it even existed? You’re not alone. Almost everybody falls into the same category.
What you need is an accountability coach. A coach is the key to the success of so many successful business people and athletes. They have coaches to keep them focused on achieving their goals.
Asset101 is a specialist financial coaching company that was created out of the need for people wanting to achieve their financial goals quickly.
Whether that be saving to buy a home or investment property, paying off their home or saving for a big event, we provide an objective perspective, accountability and keep clients focused on their goals each month.
About 90% of our clients are not on track with the original savings projections as forecasted…. They are actually ahead of our projections! This is all due to the power of their ongoing coaching and accountability program.
* The information contained in this report is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs.
Want to get serious about paying off your debt or saving more money?
Book a complimentary appointment with us online, or by calling us on 08 7200 7228.