Understanding where your money goes (and how much of it you keep), is fundamental to successfully managing your money. All successful businesses have an established plan, a budget and most importantly, measures their actual performance against their budget. Where required, they make adjustments to stay on track with their goals.
Doing a budget isn’t everyone’s favourite idea of a Saturday night in, but it is extremely important to get a detailed understanding of your income and expenses. We leverage innovative tools that give you real time tracking and categorisation of your expenses, to give you the data insights you need to help with this understanding of your cashflow.
If you work out a budget, ultimately it will only be as good as the actual figures you record against those categories to see how you have gone.
One of the first steps is using technology to do the heavy lifting for you. Technology is a great enabler in this space and it is being improved all of the time. We have access to great tools that can help you start to get an awareness of where your money is going.
Initially this might be a little confronting and it is not about us telling you that you shouldn’t spend money on that new pair of shoes or that weekend away, it is about giving you the deeper insights so you are making educated financial decisions all of the time.
Once you have this, we can leverage this one step further and show you the impact over the longer term changes to spending habits in certain areas can have.
Making the most of digital banking
We’re able to do more and more banking with our mobile phones and over the internet.
Mobile apps are a convenient way to bank wherever you are. Different banks have different apps, but they’re commonly used to see the balance of your accounts, transfer money between your accounts or make payments.
Online banking platforms usually have all the features of an app, with some more complex options, such as setting up recurring payments or gaining a more comprehensive view of your account history.
Manage your money and understand where it goes
For many of us, making a budget can seem like a daunting and fairly stressful task. However, a budget is an essential component of money management and can help you get a handle on your finances and plan for your future. Instead of picturing your personal budget as a scary list of restrictions, imagine it as the path to a happy and well-organised life.
What is a budget?
A budget records the money you have coming in (income) and the money you plan to spend (expenses). Think of it as a map of your personal financial situation. There is no one-size-fits all approach to making a budget, but there are some simple steps to take to build your own personal budget planner.
Remember that a budget isn’t just a way to keep track of your own spending habits. A good budget will also outline your personal financial goals and what steps you need to take in order to achieve them.
Why do you need a budget?
A budget can be helpful if you want to take control of your finances, it’s a great first step to help you manage your money better, by clearly showing how much you’re earning, how much you should be spending and what you’re spending your money on.
Your budget can help give you insights into how you’re spending your money and identify areas where you may be overspending or could stand to spend a bit more.
This could enable you to prioritise between essential (non-discretionary) and lifestyle (discretionary) expenses. In short, a budget can serve as a reminder of what’s a necessity and what’s simply an indulgence that could lead to overspending and financial stress.
Your personal budget will either calculate a surplus (meaning you have the right amount of income to cover projected expenses) or deficit (meaning your expenses are greater than your income).
If you have a surplus, then your budget can help you identify the right amount of money to set aside each month to reach your savings goals. If you have a deficit, then you can look at each of your spending categories and determine where you might tighten your belt to help reach those goals.
Managing your budget and aiming for a healthy surplus (saving more than you spend) can help you achieve goals big and small—whether you’re saving up for a long-weekend getaway or a down payment on a home.
How to create a budget in three easy steps
1. Calculate your income
Income can come from many sources, such as your regular pay, any side income you have, or government assistance you might receive. Don’t forget to include savings and earnings from any investments, such as rent from an investment property or dividends from shares.
To get an accurate financial picture, make sure you account for every source of income you have—even if it’s only temporary income or a small sum.
2. Work out your expenses
Figuring out where your money actually goes can be eye-opening, though it’s not always easy to get a grip on all of your spending. Start by reviewing your bank and credit card statements, bills and receipts to work out what you’re spending money on and how much you’re spending.
Your expenses will include things such as:
- paying of your home loan or rent
- groceries and dining out
- utilities such as gas, electricity, internet, phone and water bills
- transport costs like public transport, petrol and tolls
- medical expenses, such as health insurance or regular medications
- school fees and costs
- pay TV and music subscriptions
- gym memberships
Don’t forget to include expenses you may pay for on a quarterly or annual basis, such as home or car insurance, car registration and servicing, and property rates.
3. Set up your budget
An online budgeting tool can help you easily build a budget and get a better understanding of your finances. By simply adding your income and expenses, and how frequently you earn or incur them, you can create a view of your total weekly, fortnightly, monthly and annual income and expenses.
Online budgeting tools to make life easier
Once your budget is set up, it’s important to monitor your spending to ensure you’re staying on track. However, keeping on top of what’s going in and out of your accounts can be time consuming, especially if you have multiple accounts across multiple financial institutions.
We have access to technology and tools that enables you to add data from multiple sources from over 200 different financial institutions via our secure and encrypted online site. What’s more, it also automatically categorises your transactions, making the process of tracking your income and expenses effortless. With this data we can even generate graphs of your income, expenses and cash flow.
Making digital payments and automating many of your regular payments via direct debit can be helpful when budgeting, because you’ll create electronic records of your spending that are easy to track.
Another useful tool could be to set up multiple bank accounts which allows you to segregate your money into ‘Pay’, ‘Save’ and ‘Spend’ buckets, ensuring you have money set aside to pay for bills and savings goals, while knowing what is safe to spend.
Reviewing your budget
Life is certainly not set in stone, so your budget doesn’t have to be either.
It’s a good idea to review your budget regularly, to ensure that it’s still accurate and up-to-date.
Any change in circumstances, which leads to a change in your income, expenses, debts or financial goals, might signal a need to update your budget, such as:
- if you get a new job or promotion
- if you’re made redundant
- if you get married or divorced
- if you buy a house
- if you have a baby
Five habits for good money management
1. Spend less than you earn
Spending less than you earn might seem pretty obvious but having a positive cash flow each (or most) months is the first step in being able to get ahead financially. If you find you’re struggling to do this, it could help to consider whether there are any ways you can earn extra income, or any expenses you can reduce.
2. Keep track of your money
While setting up a budget and tracking your spending against it might seem like a bit of a chore, it’s pretty hard to get ahead financially if you don’t have a clear picture of your finances. Having a regular time each week where you check in with your money could turn this from a chore to part of your routine.
3. Pay off debt
If you owe money – to a financial institution or family or friends – prioritise paying it off. Start with the debts that are costing you the most in interest charges. And where possible avoid going into debt. If that means cutting up your credit cards to resist temptation, so be it!
4. Put your money to work
If you’ve got some savings, consider how you can put them to work. Whether it just be shifting them to a high-interest savings account or term deposit where you can earn more interest on your money, using money to make money is smart.
5. Plan for the future
The benefits of thinking ahead when it comes to what you want are pretty clear. For instance, buying a car, going on holiday and moving into a new apartment all within a six-month period mightn’t be financially viable. But if you spread those things out, set yourself goals and break them down to make them achievable, over a longer period of time they might all be doable.