At Financial Mappers, we’re big believers in budgeting. In fact, it’s no secret that we love crunching numbers, analysing graphs, and tracking our expenses — we chat about it all the time on our blog!
But not everyone loves budgeting. For some, just the terms ‘income’ and ‘fixed expenses’ are enough to make them melt into a puddle of fear, frustration, and boredom. After all, tracking your finances is an exhausting task, right?
Wrong! A well-managed budget can be rewarding, fast to implement, and crazy successful if you do it right, monitor it often, and use the best tools available.
In this article, we share our top tips for creating a simple budget that will help you kick your bad financial habits to the kerb and reach your dream bank balance faster. We’ll cover:
- Budgeting basics: what is budgeting and why should you do it?
- How to create a budget: categorising your finances, tracking your expenses, and using budgeting tools/apps.
- How to set financial goals and invest in your future.
So, what is budgeting?
In simple terms, budgeting is the process of creating a “set of directions” for your money. A budget allows you to better know exactly where all of your money is going and determine what you can and cannot afford in advance. It shows you what you should save and where you can spend.
Why should you budget? Budgeting is important because keeping a track of everything in your head is impossible. A quick trip to the supermarket here, a new subscription to Spotify there, and no sooner than when you made the decision to minimise your spending, have you already overspent because you didn’t…you guessed it…keep track.
If you’re serious about changing your financial habits, balancing your income with your expenses, or making big financial commitments in the future (e.g. purchasing a home or starting a business), you should commit to budgeting.
Okay, but how do I create my first budget?
Creating your first budget is a lot easier than you might think. To begin with, let’s start with a super easy task — splitting your finances into categories. Pull out a piece of scrap paper and jot down every expense you can think of, placing them into specific categories and groups based on similarities. For example, your categories might look something like this:
- Fixed expenses (e.g. rent, internet, Netflix subscription, prepaid phone credit)
- Non-fixed expenses (e.g. groceries, electricity bill, fuel, transport)
- Guilt-free spending (e.g. new shoes, cinema tickets, fancy meals)
- Investments and savings (e.g. car payments, home loan, travel fund)
- Income (e.g. salary, inheritance, pocket money, garage sales, bank interest)
Tracking your expenses
Once you know where you spend your money, it’s time to work out what you spend per week/month/year. There are a ton of ways you can do this, from good ol’ pen and paper to spreadsheets, forms, and smartphone apps. Some of our favourite tools are:
- Financial Mappers (cloud-based platform)
- Mint (smartphone app)
- Pocketbook (smartphone app)
- Google Sheets (spreadsheet program)
- Microsoft Excel (spreadsheet program)
No matter what system you decide to use, the essentials are exactly the same. You should record all of your expenses, purchases, and receipts, and place them in their relevant categories. As you get into a tracking routine, you may discover some pretty surprising spending habits, and you can adjust your plans accordingly.
For example, if you find out that you’re blindly spending a lot more money on takeaway food than you would like, you can use your budget to stay accountable and restrict your spending in that area. And if you work out that you’re spending way more than you earn, then it’s time for a financial overhaul!
Setting financial goals
Okay, so now that you know where and what you’re spending, it’s time to get serious. While it’s smart to track your finances and keep organised records, you still have one problem: you can never really make big plans if all you do is track your money after you have spent it.
To make real financial progress, you need to set realistic goals before you spend your money.
Some example goals include:
- Paying off your debts or university loans by a certain date
- Taking a family vacation overseas with extra spending money
- Purchasing a new car or putting a deposit on a house
- Investing $1000 in shares
- Saving money for a startup business
- Putting $20 aside each week for your child’s education
- Reaching a new superannuation or retirement fund milestone
Regardless of what age you are or what life stage you are in, it’s likely that you have both long and short-term financial goals. Setting tangible goals, following them, and then monitoring your progress with your new budget is the key to achieving wealth. Just be consistent and you’re sure to succeed!
Disclaimer: Financial Mappers does not have an Australian Financial Services License, does not offer financial planning advice and does not recommend financial products.