5 ways to get your budget into shape
With more than half the year behind us and Christmas fast approaching, now is the perfect time to talk about money – namely, how you can manage your money more efficiently, and avoid wasting your hard-earned dollars on interest and fees.
The first and arguably most important step in mastering your money is to take control of your day-to-day spending and expenses. It sounds scary, and it can be at first.
Also read: Aussie mums reveal their 10 best budgeting and saving tips
Also read: Mum cancels job interview to pick up her kid from daycare, then this happens
But it’s also very empowering, knowing that you are living within your means and building towards your financial future.
The process all begins with a thorough understanding of how much money you have coming in (your income) and how much is going out (expenses). Follow these five steps, and you’ll be starting the new financial year on the right foot:
1. Calculate your income
Your income includes your salary or wage, family payments, rental returns, business income or other investment income.
If you have an irregular income, because you run your own business, work irregular shifts or FIFO, it can be a good idea to budget based on the minimum amount, so you don’t find yourself short on those weeks that you bring in less money.
2. Tally up expenses
The next step is to tally up your expenses. Take a look over your bank statements and receipts for the past 12 months and figure out how much you’re paying for each item in your budget.
Then divide the yearly amount by 12 (if you get paid monthly), 26 (if you get paid fortnightly) or 52 (if you get paid weekly) – and that’s your starting point for your budget.
This creates your essential ‘bottom line’, otherwise known as your cost of living.
This is such an important figure for people to have a handle on. Many don’t have any clue how much their day-to-day life costs; this is an essential life-skill that is unfortunately not taught in schools, though I really believe it should be!
3. Note your cost of living
Once you’ve jotted down your current expenditure, you might be surprised at what your life actually costs you.
Depending on your lifestyle, family situation, risk appetite, values and obligations, your cost of living could be anything from a few hundred dollars to $10,000 per month – or more.
If your cost of living is higher than you expected (or worse, greater than you can afford) it’s time to brainstorm ways to reduce it.
4. Review your expenses
Your regular expenses can be divided into two broad categories – needs and wants.
Within these categories, you’ll have some expenses that are fixed (such as rent, mortgage payments, or school fees) and others that are variable (such as groceries, car services and medical appointments).
5. Look for opportunities to save
When you examine your budget more closely, you may realise that some expenses that you thought were fixed – utilities, for example – can actually be reduced if you take steps to limit your power and water usage, or switch to more energy efficient appliances.
It might become clear that consolidating your debts is worth looking into; this way, you only have one repayment on one debt per month, rather than lots of little payments going out on various debts and loans.
You might also be able to call your providers and request a better rate or a pay-on-time discount, to reduce these costs. Many energy providers also offer the opportunity to pay a monthly amount, so you don’t get slugged with a sky-high quarterly energy bill.
The same is often true for insurances: shopping around can save you hundreds of dollars, if you’re prepared to invest a few hours of time to get the best deal possible.
While changing providers may seem like a hassle, it could save you thousands in the long run. Often you won’t even need to switch, as your current provider may offer to match the deal you’ve been promised elsewhere.
If you need a little help getting to grips with your financial situation and sorting out your budget, you can speak to a broker, financial advisor or even a free financial counsellor.
There’s also a really useful government website, MoneySmart, which has loads of information and tips, as well as some handy calculators to help you make sense of savings goals and how interest works.
Nancy Youssef is an award-winning finance broker, mentor, philanthropist, and founder of Classic Finance and Classic Mentoring. Nancy is the author of Fear Money Purpose, which is designed to inspire others – women especially – to step out of their comfort zone and be inspired to achieve more. Find out more at www.nancyyoussef.com.au.
Make your money work with Yahoo Finance’s daily newsletter. Sign up here and stay on top of the latest money, news and tech news.