Are you budgeting your money wisely for rainy days and retirement? How do you ensure you’ll always have enough money to buy what you need and have the things that matter to you?
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- Are you budgeting your money wisely for rainy days and retirement? How do you ensure you’ll always have enough money to buy what you need and have the things that matter to you?
- What is Budgeting and Why is it Important?
- Helpful Budgeting Methods
- Effective Ways to Stick to a Budget
- Top Budgeting Tips
- Types of Budgets
- Budgeting Myths and Misconceptions
- Find the right Financial Adviser for you with the help of an MMS Money Buddy.
The Reserve Bank of Australia reported in 2020 that the country’s household debt had risen significantly during the past three decades. The statistics highlight the need for individuals to learn how to manage their money wisely.
Find out what budgeting is and why it’s essential. This article explores budgeting tools, bank accounts for budgeting, and how to track bills and payments to help you manage your finances smarter.
Read on and learn about the different budgeting methods, including developing a savings plan, reducing discretionary expenses, and sticking to your budget.
What is Budgeting and Why is it Important?
Not all people budget. Some find it daunting to write down their expenses each month, only to realise they don’t have enough cash flow to cover them.
Budgeting can help you track the income and spending of your household or company. You can also avoid overspending and other common pitfalls to achieve your financial goals in the short and long term.
Creating a budget can be straightforward. It’s something to consider even if you think your personal or business finances are in good shape.
The three types of budgets include balanced, surplus, and deficit. These types are based on the relationship between an individual’s or company’s income and expenses.
In a balanced budget, the expected income is equal to total planned spending. Meanwhile, income is higher than spending in a surplus budget. Finally, spending is higher than income in a deficit budget.
Do You Have a Savings Plan?
There’s no “one size fits all” savings plan; however, you should have short and long-term financial goals that include three categories:
1. Emergency Fund Savings
These savings should be a top-priority short-term goal. Try to start with an emergency fund of at least $500, which is enough to cover small repairs and emergencies, and then build from there.
You can also save up to six months of expenses in case you lose your job. Having a financial cushion will help you sleep better.
2. Retirement Savings
Your age pension and super fund may not provide enough money for retirement. One possible option is to ask your employer to automatically add a portion of your salary into your super fund through “salary sacrificing.”
3. Personal Savings
This tool allows you to store income that’s left over after you handle all financial responsibilities. You could save up for a first house, new car, or dream vacation.
An automated savings plan with automatic deposits can build a nest egg through an emergency fund. It can grow steadily through compound interest.
Helpful Budgeting Methods
Individuals and companies can select from several possible budgeting methods. It’s important to select one that best suits your household or business.
1. 50/30/20 Method
This option sets aside 50% of your monthly income for needs, 30% for wants, and 20% for savings and debts.
This budgeting method is well suited for those getting started with a budget and for those who want to categorise needs over wants. What’s appealing about this method is that it gives you room to save while also maintaining debt payments and living expenses.
2. The Envelope System
This budgeting method is well suited for people who need more discipline when it comes to spending but don’t want to track every expense. This involves setting a monthly expense limit for your different spending categories (such as groceries).
You then fill envelopes with your spending limits. Some people find using real cash the most effective way to stay on budget. You can also use separate bank accounts for your different expense categories to keep everything online and cashless. Once your ‘envelope’ is empty, you can’t spend any more money on that category for the rest of the month.
3. The Pay Yourself First Budget
This is a helpful method for those wanting to pay off debts and grow their savings. This method involves prioritising savings over immediate expenses. You first decide how much you want to put aside for savings goals, then use the rest for bills and other costs.
4. Zero-Based Budget
Zero-based budgeting implements strategic goals into the budgeting process by linking every dollar to a specific category and cost. This means dedicating every dollar of your income to either debts, living expenses or savings goals until you have deliberately used every single dollar.
This budget suits overspenders and meticulous planners and helps clarify your expenses.
Effective Ways to Stick to a Budget
After creating a budget it’s important to stay on track when implementing it. For example, resist the urge to use your credit card.
The following tips can help you stick to your budget:
- Make your budget cheat-free – Make it tough to prevent yourself from making impulse purchases. Remove stored payment info from certain online stores or retailer email lists.
- Get some support – Reach out to those who are also on a budget to create more spending accountability. Options include a monthly meeting with close friends or like-minded people in an online forum.
- Buy with cash – You can still make online payments; however, handing over lots of $20 bills, for example, is a powerful experience that helps you focus on how much money you’re spending.
- Give yourself rewards – Stay motivated by giving yourself short- and long-term rewards. It might include a meal with friends at a nice restaurant, or attending a live concert.
- Schedule regular budget reviews – Predicting how much money you’ll need for each spending category can be difficult. Therefore it is helpful to review your budget regularly and make changes when necessary.
- Keep learning – Educate yourself about financial management, personal finance, and good investments. Talk to financially savvy friends to get some helpful tips and advice.
Top Budgeting Tips
Every financial plan includes a budgeting foundation. This case is true whether you’re earning a six-figure income or living from paycheck to paycheck.
Know the amount of money you own and where it’s going, and then figure out the best method for allocating funds. Here are some practical budgeting tips:
1. Create a Budget
This step is your road map to financial success. This process should include making a budget worksheet with different expense categories. Include the most common expenses for easy tracking.
2. Break up Budgeting Goals
Find a good budget planner where you can include both personal and business plans. List all your expenses and split them into fixed and variable expenses.
This step can include short-term goals like buying a t-shirt and long-term goals like buying a house.
3. Avoid Overspending
The primary function of a budget is to help you track how much you’re spending. If you have financial problems then you might be spending too much money.
One approach to take control of your money is to find spending leaks, such as streaming services or magazine subscriptions.
Practical Budget Ideas to Save Money
- Calculate your monthly take-home pay
- Pick a budgeting system you’re most comfortable with and monitor your progress regularly
- Choose an effective budgeting method and automate your savings
- Stay fiscally disciplined and leverage your micro-investments
- Review your budget regularly
4. Shop Around for Lower Prices
This option can help to save money on different bills like electricity, internet, and phone. You should consider factors such as provider rates and value.
You can also take this same step for insurance such as health, life, car, home, and business.
5. Use Cash to Control Finances
Debit and credit cards make it easy to pay for goods and services by swiping plastic. However, it can be tough to limit credit card debt and keep track of how much you’re spending.
Financial advice from an adviser with an Australian Credit Licence (ACL) can help you take control of your finances.
Spending cash is slower than using credit and debit cards, and It can help you visualise your spending.
6. Earn Interest Through Savings
You have other options besides a standard bank account, such as savings accounts with high-interest rates and term deposits.
In addition, you can improve decision-making by talking to a financial adviser about your different options.
7. Outline Savings Goals
Having specific goals can help you save more money. Think about your short and long-term savings goals and commit to them.
Some examples include a summer vacation in France’s Bouge region within the next six months, or a dream home within the following year.
8. Use Technology to Improve Budgeting
You can find free and paid mobile budgeting apps with features like budgeting calculators. Remember that the fees for paid apps offer more features.
The best budget-focused apps you can use include:
- Budgeting Apps In Australia, several budgeting apps and budgeting tools are available. These mobile apps include helpful features for budgeting.
Some of the best budgeting apps can show you how much money you can spend, while remaining under budget for the month.
- Banking Apps Besides a budgeting Excel template, you can also use these apps for managing daily expenses.
How Secure are Budgeting Apps?
Mobile apps offer tools to boost data security. These tools include trusted host servers and strong encryption to protect Australians and their money.
You could also implement app security on your mobile phone. This includes checking out a financial service’s website security.
Additionally, before you give private info to third-party services, you could check with your bank.
Online Budgeting Tools that Help Save Money
Web-based tools, like money management tools, can make your life easier by monitoring spending to stay on track.
These online tools can include various functions related to expenses, income, transactions, and cash flow. They help create easy-to-track electronic spending records.
Tracking Bills and Payments
Some free budget apps let users track future bills and split them. This budgeting app could be ideal if you have housemates.
If you are proficient in usingExcel, you could also create a spreadsheet to track expenses with a budgeting template.
9. Use Top Savings Resources
The right tools can make it easier to save money. For example, a budget app can help you track spending and manage your budget when you’re out and about.
Additionally, find the best places to store your savings. These options include a high-interest savings account and Individual Retirement Account (IRA).
Setting up Bank Accounts for Budgeting
The way you set up and utilise your bank account varies for each person. However, the easiest method is to have a separate account for savings, fixed expenses (like monthly bills), and spending.
Types of Budgets
The main goals of a budget are to build financial freedom and avoid significant debt. Remember that staying on budget can shape the future you want.
Whatever the size, industry, and goals, you’ll have to weigh many factors for a budget that meets your needs.
1. Personal Budgets
Personal budgets are detailed monthly spending plans that include:
- Source of money or income
- How much money you have
- Where you’re spending money
Creating a budget isn’t just for people who need to monitor monthly cash flows because money is tight. Everyone can benefit from personal budgets.
A budget or cash flow is more important than your bank accounts and investment accounts. That’s because it determines whether or not you can pay all your bills.
2. Corporate Budgets
Corporate budgets are critical for operating your company more efficiently and effectively. They use methods such as budgeting zero-based.
The corporate budget process starts by listing assumptions for the next budget period. They’re related to the period’s projected sales budget, cost trends, and the economic outlook of the industry, market, or sector.
Meanwhile, corporations create a capital budget using an income statement to assess capital expenditure on major projects and investments, like new products, plants, or equipment. The process entails analysing a project’s cash budget (cash inflows and outflows), as well as profitability.
The master budget covers sub budgets, including financial statements, cash flow forecasts and outflows, and financing plans.
3. Static Budgets and Flexible Budgets
Companies such as those with an Australian business number (ABN) use these two main types of corporate budgets.
A static budget stays unchanged regardless of changes during the budget period. Meanwhile, certain variable costs affect a flexible budget. The dollar amounts change based on external factors such as production or sales levels.
Both static and flexible budgets can benefit management by evaluating the original budget’s effectiveness. They also provide in-depth insights about business operating budgets and production budgets.
Budget Forecasting and Planning Process
Having a clear plan makes it easy to forecast which months you may be strapped for cash and which ones you’ll have extra money. You can plan for the highs and lows of six months to one year, for example.
Extending your cash allocation also allows you to save up for important things like your dream home, a new car, emergency savings account, and retirement plan.
Creating a realistic budget to project your future spending can help with long-term financial planning, like launching a small business or investing in property.
Budgeting Myths and Misconceptions
Consider budgeting regardless of your financial situation. Here are 10 budget myths that can prevent you from tracking finances and allocating money effectively.
1. I Can Do a Budget in My Head
A budget in your head isn’t really a well-prepared, strict budget. It’s just a vague prediction of what could happen. For a budget to work, it should be something you can easily access and track.
Managing your monthly income and expenses can ensure you’re using your money in the best way. An effective budget can cover bills by maximising investments and savings.
2. I’m Not a Math Wizard
You don’t need to be one when using the balance sheets on budgeting software. Instead, you just use budgeting spreadsheet software to create columns for income and expenses, then monitor their differences.
3. I Have a Secure Job
Nobody has 100% job security. For example, you could lose your job to:
- Buyout or takeover
- Owner’s passing
It’s essential to have a personal budget to know your monthly income and expenses. Try to save 6-12 months of living expenses in case you experience job loss.
4. Unemployment Insurance is a Short-Term Fix
When you quit your job, it’s classified as voluntary, which disqualifies you for unemployment insurance. The benefits might be lower than job wages.
5. I Don’t Want to Be Deprived
Budgeting isn’t the same as minimising expenses. The goal of budgeting is to save part of your monthly income. Even if you can’t save money, budgeting can help you spend less than you earn.
6. I Don’t Have Big Goals
It’s tough to motivate yourself to save extra cash every month if you don’t think big. However, situations and attitudes about issues like buying a house can change over a period of time.
7. I’m Ineligible for Student Financial Aid
If you have more money, then you’ll qualify for less financial aid. However, the student aid is based on earned income.
You can use savings to cover the difference you receive from scholarships and loans requiring repayments, such as home loans and car loans.
8. I’m Already Debt-free
The problem is that if you have a financial emergency, you’ll still have to pay your bills. Here’s the bottom line: it’s important to have a safety net.
A financial adviser with an Australian Securities and Investments License (AFSL) could help.
9. I Get Raises and Tax Refunds
The problem is that these are unreliable income sources. For example, you may not get a raise or tax refund this year. In addition, changes in tax laws can affect your tax return refunds.
10. I Lack Enough Discipline
You could create an automatic transfer from your savings account or checking account that happens right after you’re paid. You could also contribute to a retirement savings plan, such as a superannuation fund.
Budgeting When Broke
Setting a budget and living on it when you’re strapped for cash is challenging but not impossible. You can still budget if money is tight. It just takes effort, focus, and determination.
Here are some ways to budget when you have no money:
- Prioritise your bills
- Don’t use the 10% savings rule
- Review all spending and financial decisions
- Drop unnecessary expenses
- Negotiate credit/debit card interest rates
- Maintain a budget journal
- Look for new income
1. How can I be disciplined with money?
If you’re tempted to withdraw money from your savings, then you can make your funds more difficult to access. Your options include savings accounts with penalties for making withdrawals.
2. How can I create and access multiple budgets?
You must first create a new budget in budget planning software. You can then see any budgets saved on your desktop, laptop, or tablet.
3. Are there free services for budgeting money?
You can use budgeting apps that link to your bank account. They automatically track all expenses so you can monitor your spending.
4. Can I set a monthly budget then compare it with real income and expenses?
A budgeting planner provides a snapshot of how you spend your money, such as health insurance and car insurance payments. It’s important to use real income and expenses to update your budget planner with accurate data.
The right budget plan can help allocate enough money for you and your household’s wants, needs, and savings. The first step you’ll need to take is to review your current spending habits.
What if you could tap into the wisdom of an experienced financial adviser instead of taking the all too common ‘hit-and-hope’ approach?
Many people may be unaware of this…but just like you, 41% of Aussies intend to get financial advice rather than going it alone, according to an Australian Securities and Investments Commission (ASIC) report.
Find the right Financial Adviser for you with the help of an MMS Money Buddy.
When you book a call with an MMS Money Buddy, you’ll:
✓ get a better understanding of your money matters
✓ have an idea of the experts you can call on to help you reach your goals
✓ be matched with the right financial adviser who can help simplify your family’s journey to financial wellness
My Money Sorted is your stress-free pathway to getting ahead with your money.
Here’s what your journey will look like:
Step 1: Start off with a quick money matters session with your MMS Money Buddy
Step 2: Get matched with a licensed Finance Adviser that’s right for your money situation
Step 3: Take the first step towards your money goals with a clear and sound roadmap prepared by an experienced Financial Adviser
It’s that easy!
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