11 Feb The building blocks of a successful budget
It’s all about the nuts and bolts
If you’ve already read about how to Make the most of your income, congratulations, you’ve taken the first step towards wresting back control of your spending. Now we’re going to go through the nuts and bolts of setting it up.
Before looking forward to what you’re going to do, it’s useful to look back and review your spending from last year. This can help in a number of ways:
- It can jog your memory regarding your typical spending patterns
- You may start to notice opportunities to reduce or eliminate certain expenses
- You can take note of large annual costs that only hit at a certain time of the year, such as insurance premiums, council rates or vehicle registration
Income and Expenses
There are plenty of apps, websites and templates out there to help you build your budget, but one of the most user friendly and comprehensive resources is the Budget planner on ASIC’s Moneysmart site. A good starting point is to budget your current situation. Be sure to capture all of your income and expenses, don’t miss out on things like bank fees and interest, and account for cost escalation in things like insurance premiums, which generally increase slightly each year. Fill out your budget to match your current spending patterns as closely as possible, and then assess your net position. If your total savings don’t match the target you’re aiming for, you’ll need to start cutting back.
The logical place to start is spending on luxuries. Holidays, concerts, tech gadgets, restaurants and bars, all the way down to coffees and newspapers; it should all be on the table. Once again, it pays to be realistic about what kind of budget you’ll be able to stick to. If you know you can’t live without getting coffee at your local café, cut it back but don’t cut it out. Take a look at your social calendar and prioritise your commitments. It may be hard to resist the temptation, but if you’ve got quite a few weddings or important birthdays to attend this year, you’ll need to think twice before going out on the town just for the hell of it.
Another useful strategy is to replace expensive luxuries with cheaper substitutes. A common example of this is to entertain with your friends at home rather than go out for dinner and drinks. Also, given how quickly items like smartphones, laptops and TVs depreciate over time, if you choose to purchase an older version of a similar product, you can save a significant amount of money without sacrificing a lot in terms of performance.
If you’re not comparing prices and products online before you shop, it’s time to start
It’s now easier than ever to research products prior to purchase, so if you’re not comparing prices and products online before you shop, it’s time to start. Researching online not only makes it easier to find the cheapest price, you can check out reviews and compare specifications to help you make smarter purchases.
The next step is to look at what you’re spending on your necessities and try to work out how to get the most out of every dollar you spend. Depending how far you want to go, it’s possible to drill down quite far. From looking at what kind of brand name items you’re getting, to scheduling your clothing purchases to coincide with end-of-season sales, there are a multitude of options. Again, ASIC’s Moneysmart website has plenty of helpful tips for you to try.