Budgeting doesn’t need to be confusing, or horribly restrictive or a punishment. We all want things in life, but there’s no such thing as a free lunch. Therefore, you’ll probably have trouble getting what you want without a budget and a plan.
You work hard for your money
You might as well use your hard-earned for something worthwhile, rather than just frittering it away on ‘stuff’ without even realising it. There are ways to make the most out of it and make budgeting easy.
Look upon budgeting as a spending plan, rather than a sentence to misery. Budgeting can even be liberating, allowing you to build the lifestyle you want. It’s a scheme for squeezing the maximum value out of every dollar you earn. Believe it or not, budgeting can even be fun.
Create a budget that works for you
With a little effort, you can do it. Don’t be afraid to start small and build from there. The most important thing is to get started and stick with it. So, if you want to make a budget you can actually stick to, here are some steps to follow:
- Pay yourself first.
- Identify a motivator – figure out what you need and want in life and set savings goals.
- Understand your current financial situation. Consider how much money you need to survive. Calculate your monthly income, expenses and what is left over.
- Identify what you can reduce or cut out.
- Make a realistic budget you can stick to.
- Stay on track by monitoring your progress. Check on your spending every month and make adjustments when and where needed.
By following these steps, you’ll be well on your way to saving money and reaching your financial goals. Give it a try!
Step 1: Pay yourself first
Why? Because you need to prioritise your long-term well-being over your immediate needs and to do that you need to treat savings as if they were your most important bill. When you get paid, put aside your savings before you spend anything – even on rent. By putting saving first, you’re more likely to look at the rest of your spending, thereby keeping you out of future, or further, debt.
Step 2: Name your driver
Ask yourself: why do I want to save money? No matter how good your budgeting plan looks, you’re not going to stick to it if you don’t have a reason to. Otherwise, there’ll be nothing to stop you from overspending. Why do you need to save? Do you want to do: go on a holiday, buy a car, get a home deposit, get out of debt, retire comfortably? Whatever it is, make a plan and set goals.
Step 3: Calculate all your earnings, expenses and debt
Write down the total you owe on each of your loans, such as student debt, car loans, credit cards, Buy Now Pay Later schemes and mortgages, plus their minimum monthly payment amounts.
Next, gather up receipts and go through your bank and credit card statements for the month. Put your spending into strict categories. Group discretionary spending like groceries, lunches,
hairdressers, or subscriptions together. Write down your fixed expenses like rent, insurance, power and phone. Next, add them up and then add up your total expenses. You can find out how much you have left at the end of each month by subtracting this figure, plus your debt, from your total income.
If you’re left with a negative number, you’re spending more than you’re making, and something needs to change.
Step 4: Make some cutbacks
Work out how much money you need to live – what your essential expenses are. Then divvy up your income by the 50/30/20 formula: 50% goes to needs, 30% to wants and 20% to savings.
- Needs include minimum required payments for debts and things like housing, utilities, transportation, basic food and clothing and health.
- Wants are anything beyond your fundamental needs like Netflix, massages, gym membership, or buying coffees, wine, lunches or shoes when you already have 20 pairs.
- Savings includes your emergency fund and your KiwiSaver.
You might be freaking out by now, but the real truth is that most of us spend far more than we should, which is why we need a budget. Decide if there are any opportunities for you to make more money, or where you can make any lifestyle changes.
Step 5: Your budget is all about you
Successful budgeting is allocating more money to things that matter to you. After you cover housing, food and transportation, the rest is budgeted according to what you value. There is no one-size-fits-all budget for everybody. It just doesn’t work that way.
If you look at your expenses and see you’ve spent too much on going out, for example, then reduce the number of times you eat out. It would be unrealistic to cut it out completely, but you can decide to reduce the amount you spend without your world completely coming to an end. You may look at your expenses and realise that you are in fact paying too much rent for what you actually earn. Maybe you need to move or get some flatmates. You might see you are paying for a gym membership that you haven’t used in a year or come to the conclusion you don’t really need four TV subscriptions.
Step 6: Set goals and do monthly checks
Life is balance. An ideal life is where you spend more on what makes you happy. So, decide what that is and put more of your budget toward it by shifting spending from other categories. It’s up to you to make mindful choices with your money that allow you to live the way you want.
Finally, stick to your budget plan by doing monthly checks to make sure your targets are realistic and that you’re sticking to them. Go through steps 3 and 4 every month. It is easier to have a consistent date each month when you do it. You could create your own spreadsheet to track your earnings, spending and saving, or there are a number of online budgeting tools you may find useful.
Budgeting help is out there and it’s free
If managing your money still seems overwhelming or impossible, then get budgeting help. By getting your spending under control and saving for your future, life can be a lot less stressful. If you need some help setting up a budget, reach out to MoneyTalks or call them on 0800 345 123 – even anonymously if you like – for personalised help. It’s free: there are no downsides or catches.