Budgeting in three
Follow our guide to some techniques you may not have thought of. You might even enjoy taking back control!
The new financial year is the perfect time to get your budget under control. The idea is to review incomings and outgoings, and ensure there’s more coming in than going out. There are lots of small steps and great tips you can follow to help you do just that.
When you’re starting out, it’s useful to spend time reviewing what you spend money on. You can do this by studying your online bank account or writing down every expense across the period.
“This is an intricate exercise, but it makes you less likely to spend money, because you won’t want to do it again,” says Jacob Aldridge, director of strategic advisory at accounting firm businessDEPOT.
“Once you have that real data, you can build a real budget,” he continues.
“I separate my budget into 15 categories, in a similar way to withdrawing your whole pay cheque and then putting the money into different envelopes for different expenses.
“Some of these envelopes are emptied most months, especially the food and transport categories. Others, like the house repairs and car buying fund, are building up for a long-term expense we don’t want to borrow money for.”
Aldridge only checks the budget twice a month. “The biggest benefit is the financial habit it gets you into, where you naturally only spend the money you have rather than having to check the bank account every few days.”
He also has a secret tip few people think about. How about using a money clip, rather than a wallet, to keep expenses down?
“This forces you to see cash more than credit cards,” he says, and since we have a harder time spending cash than using a card, it means spending less as well.
“I know I could save a little more by using discount gift cards for groceries and using my credit cards for other bills to leave cash in my mortgage offset for longer. But from practise, I find when the cash runs low, the belt tightens.”
- Measure your net worth
Aldridge says he has always been a good budgeter, which has allowed him and his family to travel to more than 30 countries in the past five years. He says one change has allowed him to do this.
“Our budget focuses on cash flow, which is income in and expenses out. But adding a simple net worth calculation means we now think about our equity situation. Rather than simply knowing we were under budget for a period, we can now see how that helps our net worth to grow on a month-by-month basis,” he says.
Aldridge says this shift in focus from income to equity has done more for his financial situation than any other decision he has made since implementing a budget.
- Cut your expenses
One idea is to only buy clothes and household goods during sales, which can save half or more of the original cost of the item.
New research indicates buying specials can save households up to $2,080 a year.
The survey, by supermarket deals comparison website mySavvy Shopper, found buying products on special, working out the best deal based on unit prices, and buying home brand products, are some of the ways consumers can seriously slash their costs.
Making a coffee at home in a re-usable cup will also save $3 per coffee, which is a gain of more than $1,000 a year, based on buying a coffee a day.
It’s also an idea to negotiate with your electricity provider for a discounted plan; some will offer savings of up to 20 per cent.
- Manage your debts
Many people have a range of debts they are paying off, for instance credit cards and personal loans, not to mention a mortgage.
Consolidating debts or rolling credit cards into a card with a generous interest-free period is one way to improve your budget.
These are just some of the ways to get your budget in order this financial year. The idea is to take small steps every day to ensure your budget is in control, delivering short-term financial freedom and long-term wealth creation.