Budgeting Tips
These are a couple of concepts that I think are crucial to success with budgeting. There are a lot of other tips that I could have included, but I think that these ones stand out as core pillars in improving your money management, even if you choose not to keep a budget. Enjoy.
Start!
In the words of Robert Kiyosaki - “Your future is created by what you do today, not tomorrow”.
If you’re looking to start budgeting, or just improve your finances in general, there is no better day that today.
Chances are that you’re already aware of the benefits of budgeting, but you might be unsure how to start. Whilst ultimately the most important budgeting tip is to start keeping track of your income and expenses, the following tips should help you to get started with a budget.
Keep it Simple - but not simplistic
This is important if you want to succeed with your budget.
- Over-complicate your budget and it will become too hard to update and stick to.
- Over-simplify your budget and it will be too general to identify any areas where you can improve.
Where possible, work with real figures. Guesses may be easy, but guessed expenses are usually underestimated - which will leave you way out and with a lot less money than you thought you had.
Before you start budgeting it is important to determine what your actual expenses are. Without this, any budget will just be a simplistic guess.
Any software you choose to help you should be compatible with these principles.
Pay Yourself First
The idea behind Paying Yourself First is simple - when you get paid you put aside a certain amount of money for yourself before you pay anyone else.
After all, you’re the one who works hard to earn the money.
There are a couple of methods in which you can Pay Yourself First, including paying down debt, or simply putting money for you aside. We will cover these different methods in more detail in a future post. Until then I will look at how you can use the Pay Yourself First principle to boost your savings.
A good way to do this is to put the money that you have decided to pay yourself into a separate account - preferably one with high interest & low (or no) fees.
Transfer the money soon after you get paid, don’t wait until the end of the month to put whatever is left in your account in to savings… chances are that there will be little left. If the money is not in your main transaction account, it is harder to spend it.
Paying Yourself First is a great way to reward yourself and boost your savings, because you are putting this money aside just for you. There is no way that you are going to stick to your budget if you never see any benefit out of it.
Set a Goal
In addition to Paying Yourself First it often helps to have a goal.
The goal does not have to be big, and even small amounts can make a massive difference to your finances with compounding interest.
For example, your goal might be to own your home sooner by putting an extra $20 per week down on your mortgage. This is a long term goal, but the results will encourage you to keep going, as you see your goal coming closer and closer to reality.
Something as simple as that $20 per week on your mortgage can help you to own your home years sooner, save tens of thousands of dollars on the total cost of the loan, and give you extra flexibility should problems ever arise. It’s a good reason to keep to a budget, isn’t it?
Prioritise
If you find out that you’re spending more than you earn it’s time to prioritise.
The idea here is not to deprive you of fun. The idea is to identify the things that you don’t really need, so that you can have fun, and still have money left over!
In order to successfully prioritise you’re going to have to run the figures to see what you’re spending and where. You can download a free trial of our budgeting software to quickly get an idea of what your true expenses are.
Don’t forget about cash
Studies show that up to 30 - 40% of many peoples spending is still in cash. Cash is also the hardest form of spending to track.
If you ignore cash or are unable to track your cash spending, you are potentially missing out on some easy savings. Although it is usually just a little bit here, and a little bit there, cash spending can add up very quickly. For this reason it is important that you attempt to keep track of your cash spending, and include cash in any budget you create. Without a proper ability to record cash purchases, you may end up with a big chunk of your spending that you are unable to account for.
I’d love to hear your thoughts on these concepts.
