Work and Wealth

5 tips to help develop your budget

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Budgeting can be a challenging, uninspiring task if you’re going through the motions of trying to be financially responsible and organised, but it doesn’t have to be that way. Here are my five tips to make the most of developing a budget:

1.         Know why you are budgeting

It’s not going to be much help if you don’t have the ‘why’ of your budget. I’ve discussed this in a bit more detail in my last post. Simply developing a budget because it’s the ‘thing to do’ or someone said you should, isn’t the purpose of your budget. Nor is blindly following the steps from articles, blogs or books (except my advice, obviously), it’ll help but won’t improve you and your finances to the level you desire.

The reason for you to have a budget is to help you spend less than you earn. The budget provides a structure to follow and a way to measure your performance, it’s not the solution itself but a tool to guide you towards effectively and effortlessly spending less than you earn.

2.         Know how much you actually make

To create a budget you absolutely need to know how much you make. For most people it will be your salary, sounds simple right? But what number are you basing your budget on? The answer is not just your annual salary or dividing your annual salary into twelve for a monthly budget. The correct answer is your take home pay per month, the amount that appears in your bank account.

Before you get the cash in your bank there are deductions such as taxes, superannuation HECS, etc. which all reduce the amount of money you have to save and spend. For example if your salary is $5,000 you’ll likely have $475 paid into superannuation, $922.67 withheld as PAYG withholding tax, in other words, income tax and $100 Medicare tax withheld. The amount in your bank account? $3,977 which is what you’ve got to work with as your income when developing a budget.

Make sure you know exactly what you’ll get in the bank account because that’s the number to use as the basis of your budget. Anything else means you’re starting with inaccurate data, which will make balancing the budget impossible!

3.         Be Realistic

Budgeting is not going to work if you make unrealistic assumptions from the start. Facing reality and being honest is tough and not enjoyable, but doing so will mean you get an accurate budget that isn’t going to put you in a hole before you even begin.

Being realistic applies to everything! Whether it’s getting your correct income, making assumptions on your expenditure or even how much you can save is vital. When it comes to how much you spend, take a week or month to track by recording or writing down everything that gets spent. You’ll probably be surprised, but you’ll then be able to have a base to create your budget so you know that if you’ve never spent under $100 on food for a week then don’t budget it to be under.

An unrealistic budget will mean you can’t achieve it, the process becomes unenjoyable and you’ll eventually give up. Be realistic, but challenging and you’ll be amazed at what you can achieve!

4.         Short term and long term goals

Having goals that link to your budget helps keep you motivated, focused and creates a stronger reason for why you’re budgeting. Setting a mix of short term and long term goals means you’ve got something to focus on achieving immediately, while chipping away at the big goal which will have a profound impact on your wealth and life.

Having short term goals that you can achieve on a regular basis keeps the budgeting process enjoyable and those little wins keep you motivated and show what your capable of! Be sure to keep them realistic, but challenging enough and celebrate each time you achieve.

5.         Have Fun

Budgeting and money is not about being the scrooge, counting every cent and spending as few dollars as possible, we all need fun in our lives.

When developing your budget include some fun money to go out to dinner and the movies, have a holiday or purchase the latest gadget or item of clothing. It’s about giving yourself permission to have fun. For example rather than purchasing lunch every day why not cut that back 2 or 3 days per week. The money saved can be used for a nice dinner each month, it’ll be more enjoyable than a lunch at work and you’ll feel as though you’re living like a millionaire.

Set a limit on the amount of fun money and have a guilt free time, all in the name of sticking to your budget!

Want to see more of Tyson’s finance advice? Click here

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Tyson works as a Chartered Accountant. When he isn’t chained to the desk he enjoys running, shooting hoops or spending far too much time studying fantasy sports. Tyson is a father, sports fan and co-founder of Brewers Feast a Melbourne craft beer and food festival.