Budgeting

Where does all my money go? Very few people can answer this question accurately. Learning how and where you spend your money is the first step in managing your finances.

Keep a financial diary

• Select a defined time period e.g. a month or 4 weeks;
• Record all of your spending in a notebook, create as many categories as you need e.g. petrol, lunch, transport etc;
• Ensure you include small items such as snacks, drinks, parking meters, tolls, donations etc;
• At the end of the month, use the category totals as part of your annual budget;
• You may choose to look for any spending that was spontaneous, wasteful or a luxury that you could do without in the future.

How to curb impulse buying

Next time you are tempted by an unplanned purchase, ask yourself:

• Do I really need it?
• Will I really use it?
• Will I still like it next month/next year?
• Is the price likely to be reduced at an end-of-season sale?
• If I don't buy it now, do I want it so much that I will make a special trip later to come back and buy it?

A budget can help you plan your expenses and save for things you want.

Managing credit or simply covering expenses is not always easy but following these steps will help you control your finances:

Add up your earnings each week (or fortnight or month) and subtract regular payments or basic expenses:

• Rent or mortgage repayments;
• Food and household needs;
• Utilities (phone/electricity/water);
• Transport expenses (travel passes, petrol, car registration, maintenance);
• Health needs;
• Insurance (health, house, car, travel etc);
• You should include yearly expenses such as car registration and insurance in your budget. You can divide these totals by 52 for the amount to budget for each week (or divide by 26 for the amount to budget each fortnight or by 12 if your budget is calculated on a monthly basis).

Subtract regular payments or lifestyle bills and expenses:

• Entertainment;
• Clothing;
• Personal grooming;
• Home appliances;
• If you are not sure as to how much you spend, either make an estimate and review it after 3 months; or consider tracking your spending for a month.

Allocate additional funds to cover:

• Loan repayments;
• Additional superannuation contributions;
• The amount of money that is left can be used to buy things that you want or to save.

Plan your personal budget online.

Use our budget calculator to assess your income and expenditure and find out how much you can really save.

• Click here to use our budget calculator.

Saving may appear to be difficult and disciplined, but think of the feeling of being able to afford to buy something you have wanted for a long time.

Here are some tips to help you on your way:

• Set yourself a savings target and aim to save 10% of your gross annual income. This breaks down to 5% for short-term goals and 5% for long-term goals;
• Tip - the 10% rule. If you've never been a successful saver before, start off slowly. Leave committing to medium or long-term goals for a while until you're confident a saving strategy is within your reach;
• Set yourself one short-term goal - perhaps 3 months away - that requires only a small amount of cash;
• Then set aside 10% of your income each week in a separate savings account;
• At the end of 3 months, withdraw the cash to pay for your small goal - perhaps a weekend away or a new piece of clothing - and if there is any money left over make that the first instalment in your next savings goal.

The key to successful money management is to put funds aside during the good times and to minimise financial stress during bad times. Remember to allow for unexpected debts and emergencies e.g. illness in the family, loss or breakage of possessions, career interruptions etc.

Tip - how much is enough?

• Singles and couples should consider developing an emergency fund equal to 2 months take-home pay in case of retrenchment or emergencies;
• Those with young families should aim to build up an emergency fund equal to 3 months take-home pay.

• Don't make your budget so tight that it's impossible to keep;
• A budget is not set in stone. It is there to help, not hinder you. A sign of a successful budget is one that is flexible during tough times and able to reward you when your prospects are brighter;
• If you blow your budget one month, try to make up for lost finance in areas that are more flexible e.g. entertainment or eating out;
• Revisit your budget every 3 months to see if there are any areas you can tighten up to improve your financial flow.