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Budgeting & saving

How to budget: Your five step plan to brilliant budgeting

16 May 2019

Money & Life team

Money & Life contributors draw on their diverse range of experience to present you with insights and guidance that will help you manage your financial wellbeing, achieve your lifestyle goals and plan for your financial future.

Budgeting doesn’t have to be complicated. In this guide you’ll find a simple five-step guide to becoming brilliant at budgeting so you can start saving and spending to achieve your personal and financial goals.

1. The right mindset

Think budgets are boring?  They certainly can be if you don’t have a financial goal you’re truly passionate about. If you want to be feeling fired up as you work through each step in this budgeting guide, then do some work on getting clear about what money could actually mean to you. John Purl, Senior Financial Adviser for Affinitas Capital always starts by talking to his clients about their values and then making the link between what matters most and their money. “You’ll struggle to get anyone to stick to a cash flow, budget or savings plan, if it does not align with their true values,” says John. “The values conversation has the greatest impact on their motivation to make changes. Then you follow up with a specific process to determine what needs to change.”

2. Money in, money out

Taking a microscope to your cash flow is where the budgeting action starts as it’s essential to helping you set achievable targets for spending and saving. “Budgeting starts with a look at cash flow – money in and money out – to get to a realistic budget for your expenses,” says John. Carefully monitoring spending can also shine a light on how much your current habits actually match up with your values and goals. If you have your heart set on an overseas holiday once a year, should weekly restaurant meals be an option? By cooking at home for three out of every four Saturdays and saving that money towards travel instead, you’re directing your budget towards what matters to you.

There are plenty of budgeting apps out there to take the hassle out of watching your dollars and cents. Once you’re in the habit of logging your expenses, the apps can do the heavy-lifting by collating results and giving you a big picture view of where you could be spending less. You can also use the budget planner from MoneySmart to take a closer look at your cash flow.

3. Organise your accounts

Once you have some figures at your fingertips for essential monthly expenses, setting up a number of accounts can help you keep that spending separate from the money you save. David Sharpe, CFP® professional and principal adviser at Globe Financial Planning in Perth says the single biggest mistake most Australians make is operating only one bank account. “Everything goes in, everything goes out,” says David “The finance mentality of most of us is to spend whatever is in the account. And the more you earn, the more you spend.”

Instead of seeing your entire salary disappear each and every month, try setting up four accounts for your income, divided up roughly like this:

These percentages are only an example and you may need to tweak yours to match current commitments as identified in step 2. And remember your bills account should have enough to meet all loan repayments as well as other regular outgoings like groceries, insurance and utilities. 

4. Get strict on spending

David and John are definitely in agreement on the importance of values and lifestyle goals in motivating us to achieve these spending and saving targets. “The will to be financially disciplined is much stronger if you know that this will help achieve your most important goals in life,” says David. “This will lead to a natural reduction in discretionary expenditure over time.” However, it can help a lot to understand where your blind spots are when it comes to giving in to temptation. Even with the best intentions, our brains are wired to be easily swayed into buying even when we know it’s beyond our budget. It can help to have a few mind hacks to help you spend less up your sleeve.

5. Team up and keep going

When you share your financial goals with someone else and commit to reporting back to them on your progress it can really motivate you to keep going. Teaming up with a budget buddy is a great way to keep you accountable for sticking with your new saving and spending regime until it becomes a habit. According to John, surrounding yourself with people who share your values about money can also help. “Look to build an external council you can lean on as you go about these financial and lifestyle changes,” says John. “Engage with friends who’ll keep you honest about controlling spending. And working with professionals like a financial adviser who brings new ideas as well as support towards your financial goals.”

Creating a budget that’s right for you and your partner is just one important part of sorting out your joint finances. Discover why working on a Pronup with a CFP® professional can help you achieve your financial goals as a couple.

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