7 Tips for creating a successful budget
I recently read that the finance industry ‘has a vested interest in keeping finances complicated’, when saving money and budgeting can actually be quite simple. It helps to think of budgeting as simply telling your money where to go, rather than depriving yourself of the things you love. These 7 tips for creating a successful budget will help you put together a budget that actually works.
Know your why
To successfully stick to your budget, you need to know why you are doing it in the first place? Is it to save up for a house or holiday, or is it part of your longer term strategy to build up savings? Whatever your goals, these goals are going to help motivate you to stick to your budget when temptation strikes.
Know how much you make
Before you can work out what you have left over at the end of every month, you first need to know exactly what you bring in each month. This is not just your annual salary divided by 12, but is your after tax income. Be sure to include income from all sources.
Know how much you spend
Knowing how much you spend, and on what, will make it so much easier to create a budget. To work out how much your expenses are, track everything you spend for a few weeks, which will give you an accurate idea of the expenses you might not realise you are making, and how much to allocate toward each expense in your budget.
Find tools that will make budgeting easier for you
There are plenty of tools out there that will make budgeting that much easier for you, many of which are completely free. There are lots of websites (including Bargain Mums) that are filled with great budgeting advice and inspiration. It’s also worth taking a look at apps that can help you manage your money on the go, in particular apps that help you track your spending.
Keep it simple
While there are a huge number of budgeting tools out there, sometimes it’s best to keep it simple, especially if it’s seems to be all too hard to create a budget. I still create my own budget on paper, because that’s how I prefer to do things; with a pen and paper in front of me. I find it easy to keep a paper budget, then alter figures with a pen as needed. Do what suits you and your personality, and keep it simple.
Keep it realistic
If you create your dream budget, rather than a budget that realistically suits your lifestyle, you could be setting yourself up for failure. The best way to keep your budget realistic is to list your actual expenses in your budget, rather than the amount you would like your expenses to be. You can easily alter the figures in your budget anytime down the track, but it’s best to start with your actual expenses, work out how much you have left over for savings, and then work on adjusting your budget from there according to your short and long term goals.
Use the 50/30/20 budget
One of the most common questions I hear people ask about budgeting is how much money they should allocate toward spending and saving. This obviously depends on everyones individual situation and needs, but a great start point if the 50/30/20 budget. Once you know your after tax income, you simple allocate 50% toward essential spending, such as food and housing, 30% toward non-essential spending, such as entertainment and eating out, and the remaining 20% is allocated toward saving for long term goals.
If you had $1000 per week after tax income, you would then allocate $500 to essentials, $300 toward non-essentials and then $200 toward savings. If you find you are struggling in one category, you can then tweak your budget as you go. You might find $500 isn’t enough for your necessities, so you could reduce the non-essential spending a little to free up some extra cash.