No matter how much you earn for a living, when it comes to budgeting, some of us simply find it easier than others.
With so many budgeting tips and strategies available it can get confusing when trying to invest in a long-term strategy that works for you.
An alarming 86 per cent of the Australian population don’t know how much money they’re spending every month – that’s a considerable amount of money that’s not being used effectively.
Here are Inovayt’s top 5 budgeting tips to help you save.
Budgeting tip #1: Decide why you’re budgeting and set a goal
The first thing to do when setting a budget is to sit down and think about why you want to budget.
Inovayt Managing Director, Nick Reilly says, “When it comes to goal setting, what are you trying to achieve? Is it a certain savings amount, a house deposit, a holiday, or even school fees?
There are all sorts of reasons why people set budgets up, it’s just a matter of finding your reason.” Whatever your reason for creating a budget, make sure it’s clear in your mind.
Although you don’t need to set a goal when creating a budget, it’s nice to work towards a specific goal which means you can check off milestones along the way to hold yourself accountable.
For example, if you want to save $15,000 in a year, you will need to save $1,250 per month, which is $312.50 per week.
Breaking your end goal into these smaller milestones can feel more achievable than looking at the target amount and feeling overwhelmed.
Budgeting tip #2: Expect the unexpected
When creating a budget, it might feel easy and empowering to track every cent. While this is important, so is planning for unexpected expenses that may arise month to month.
We’re not talking about bigger than usual grocery bills, but rather larger, unexpected expenses like if your car tyre needs replacing or your dog needs a spontaneous trip to the vet.
“An emergency fund typically is set up so you don’t need to make any drastic moves that aren’t right for you financially because you don’t have any other options,” explains Nick.
Setting up an emergency fund in case of these issues is something you can do to combat these expenses if and when they pop up.
Setting aside $500-$1,000 in an ‘emergency fund’ account will save you from dipping into your hard-earned savings in case of an emergency later.
To minimise the temptation to pull out money from this account, consider opening an account where you can’t transfer money without great difficulty.
It might also be a good idea to set up an emergency fund with 3 to 12 months’ worth of income in it, in the event you lose your job.
“You want to make sure this money is available to you at any given time and not tied up in shares,” Nick advises.
Budgeting tip #3: Choose a budgeting method that suits you
There is a plethora of budgeting methods that exist in today’s world, so it’s important to do your research and find the one you think will work best for you and your circumstances.
One of our favourite budgeting techniques is the 50/30/20 method.
In this method, you allocate 50 per cent of your budget to things you need – these are your bills, mortgage or rent repayments and groceries.
30 per cent will be dedicated to your ‘wants’ which are things that you would like but aren’t essential for your survival.
These are things like dinner with friends, recreational shopping, streaming subscriptions, and other hobbies. The last 20 per cent goes into your savings account which will contribute to your overall savings goal.
Setting up this goal requires you to look at your budget from a monthly perspective and work out what percentage of your wage will be deposited into each of these accounts.
While this method is one of the more popular ones, it’s important to note that budgeting isn’t a ‘one-size-fits-all’ approach.
For low-income earners, more than 50 per cent of their wage may be required to service all their ‘needs.’ For those wanting to reach their savings goal quicker, 20 per cent may not be enough each month.
Because of this, it’s important to take this method (and similar ones) and adjust them where you see fit.
Nick says, “It’s important to work out your discretionary and non-discretionary spending, but make sure you have an allowance for non-discretionary spending because if you don’t have this, life is no fun, and you won’t stick to the budget.”
Check out the Inovayt blog How much of my income should I be saving?
Budgeting tip #4: Shop around
If you haven’t revisited some of your policies (such as car insurance, home and contents and health insurance) recently, why not have a look into where you could be saving?
A staggering 78 per cent of Australians miss out on a better deal because they don’t shop around come renewal time on things like car, home and health insurance.
It might feel like a tedious job but shopping around and comparing policies can save you money in the long run – sometimes even in the thousands! Instead of hitting the auto-renew button, take the time to research, ask family and friends and find the policy best suited to your needs.
Before creating your budget, try shopping around and comparing policies to see whether you’re getting the best deal – you might even be able to save some extra money.
If you haven't also reviewed your home loan within the last two years, it would a good opportunity to compare home loan interest rates to save some money with a refinance home loan.
Budgeting tip #5: Revisit and review regularly
Regardless of whether you have all your payments automated, a budget shouldn’t be something you ‘set and forget.’ Make it a habit to revisit your budget monthly as expenses each month can vary.
Maybe you got a bonus in your paycheck this month, or Christmas is around the corner meaning you’ll need to sort out money for presents.
Checking in frequently can help ensure you’re staying on track to meet your overarching goal - and all the milestones in between! Quite often, you will need to tweak your budget to align with what’s happening that month.
Nick also recommends doing a larger annual review of your budget.
“You should review your budget annually or sooner if there’s a significant change in income, family situation, or expenses,” says Nick.
Budgeting is a very personal thing and there is no right or wrong way to approach it.
Before starting a budget, it’s important to review and set a solid base for your budget by doing a thorough check on your monthly income.
