Simple guide to budgeting

March 30th 2020 | Categories: Financial Planning | Budgeting & Goals |

One of the greatest sources of money stress is uncertainty. Not knowing where you stand financially can be a source of anxiety. By understanding what you spend now, you can provide yourself with some clarity. You are then able to make informed decisions about what needs to happen next.

The basics of budgeting

Budgets are made up of three key areas:

• What you earn
• What you must spend based on your current situation
• What you spend to support your lifestyle

Facing the facts

The best way to build a budget is to take a deep dive into what you have actually been spending. For this, we recommend using a tool that helps. Our clients have free access to Money Brilliant Premium which will allow for in-depth insights and navigation of your complete financial picture in one place. The basic plan, which is free, also allows you to see back into time by pulling all of your transaction data into one place and categorising it for you.

Understand how a financial adviser can support you with your need for financial security. Get in touch.

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Build your budget:

1. Download Money Brilliant (if you are a client, get in touch with your adviser for your code and additional support)
2. Sync all of your accounts using the too
3. Check categorization
4. Review your data to understand your budge
5. What can’t change? What is a recurring bill? Set those up in the bills tool
6. Make decisions about what will change in the future
7. Amend your budget accordingly with the budgeting tool.

If you’d prefer a more manual approach, you can access our budgeting tool here. We do recommend using Money Brilliant to get a quick and thorough review of what you have been spending so you don’t miss anything.

Your financial roadmap

Once you have clarity around your budget basics and historical spending patterns, you can make some choices about your future. Here are some things you should consider:

• What is most important to you? Does your spending align with that?
• What has surprised you? Are you spending more or less on something than you expected?
• Where can you sharpen a pencil?
  • Are any of your fixed ‘must spends’ negotiable?
  • Can you reduce your mortgage payments?
  • What are your biggest living expenses and can they be reduced?
  • Has impulse shopping impacted your past and how can you kick that habit?
• If you are about to retire, understand how your expenses are likely to change

If you are not where you want to be, our tips are:

• Talk to someone, despite the ‘taboo’ it is ok to talk about money
• Take our 10-week Money Bounce Back Challenge
• Seek advice

Common budgeting mistakes

In our experience working with thousands of people, we have seen some common mistakes when it comes to budgeting and general cashflow management. Don’t fall into the same traps.

• Using guesses rather than reality: it is incredible how small amounts add up and have a big impact. If you are guessing or estimating your income and expenses you are more than likely missing out on the powerful detail. Use a tool to help you get the full picture.
• Keeping the same budget every month: In real life, our expenses fluctuate. Don’t forget any annual payments (car registration, insurances, Christmas shopping, travel plans, etc.).
• Forgetting the unplanned and emergencies: cars do break down, unexpected illnesses happen, house repairs need to be made – make allowances for these.
• Being too strict: you will spend money enjoying yourself so allow for it.
• Not negotiating: ask for a better deal on the things you are paying for.
• Forgetting about income: we often focus heavily on which expenses we can shave when trying to save more but don’t forget about income potential as well. How can you earn more?
• Overcomplication: Your budget doesn’t need to drill down to the finest line item to be powerful. Keep categories high level and use technology to do the heavy lifting for you. If you end up spending more in one category, you can always drill down to understand where things went wrong.

Budget elements

The following is a guide to the things you will consider in your budget building:

What you earn

In simpler situations, this will simply be your wages. Additionally, it may include government support, pensions, investment income, Adhoc gig revenue, etc.

• Wages or salary
• Government support (i.e. JobSeeker Payment, Youth Allowance Jobseeker, Parenting Payment, Farm Household Allowance and Special Benefit, Carer Payments, Austudy, etc.)
• Pensions (Age Pension, Veteran Service Pension, Personal Pensions)
• Investment Income (dividends, rental income)
• Ad hoc (Gig income, Casual Wages, Sale of personal items)

What you must spend based on your current situation

These are your core expenses, things needed for your basic living and other expenses that once committed are difficult to change quickly.

• Accommodation (mortgages, rent and bond)
• Services and Utilities (electricity, gas, phone, internet, council rates, strata and body corporate, etc.)
• Groceries (grocery, alcohol, bakery, butcher, etc)
• Health (Doctor, Dentist, Chemists, Scripts, Hospital Visits, Health Insurance, Specialists and Natural Therapies, Optometrist, and other Medical costs)
• Family (Any out-of-pocket Child Care fees or Baby Sitting Services)
• Insurances (House and Contents Insurance, Car Insurance, Life Insurance, Income Protection and TPD/Trauma Insurance)
• Auto/Transport (Fuel, Registration, Licence and Service of Cars. Also include Public Transport, Taxis and Parking costs)
• Fees and Charges (Service Charges, Fees and Other Interest Paid, Investment loans (Do not include interest for home loan or loans mentioned above))
• Investment Expenses (Agent fees, rates, strata fees, body corporate fees, property repairs, house maintenance, gas, electricity, water, other)
• Financial (Taxes Paid, Retirement Contributions (personal), Investment & Shares, Accountant/Tax agent fees)

What you spend on ‘nice to have’s’ or discretionary items

Some of these items may be non-negotiable to you but if push came to shove, they are more easily adjusted.

• Dining out (Restaurants, Café’s, Bars, Takeaway)
• Education Fees (Education Costs including School fees, Textbooks, Uniforms, Sports and other Activities)
• Gifts & Donations
• Hobbies & Entertainment (Entertainment, Events & Concerts, Recreation, Subscriptions, Activities, Movie Hire, Hobbies etc)
• Home (Home Maintenance, Home Improvement, Housekeeping and Gardening, Storage)
• Other & ATM (Cash Withdrawals, Other Expenses)
• Personal Care (Grooming, Beauty, Dry Cleaning, Gym & Fitness)
• Pets (Pets & Pet Care, Vet, Food, Pet Insurance)
• Shopping (Clothes, Shoes, Electronics, Books, Newsagent, Homeware, Other shopping)
• Travel (Flights, Accommodation, Transport, Passports, Visas)
• Savings & Contributions

Building a budget does not need to be painful. It may seem like ‘ignorance is bliss’ but we know that uncertainty actually breeds stress. Take a bit of time, use technology to support you, and ask for help when you get stuck. With an accurate budget, you can start to move forward with the life you want.

Get in touch with us today if you would like to find out how we can help.

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What you need to know

This information is provided by Invest Blue Pty Ltd (ABN 91 100 874 744). The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regards to those matters and seek personal financial, tax and/or legal advice prior to acting on this information. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relations to products and services provided to you.