The surprising secret that will make budgeting easy

Australia, we have a budgeting problem.

More than one in three Australian adults don’t have a budget, UBank’s latest Know Your Numbers Index has found. And that’s despite 45 per cent also saying their finances were hit hard in the six months to September 2020.

The lack of budgeting skills among Australians is partly due to budgeting’s poor PR, according to Téa Angelos, founder of the careers, finances and wellbeing hub the Smart Women Society.

“We really want to remove that negative stigma around that word ‘budget’,” she told Yahoo Finance.

“At the end of the day, a budget is just a plan for your money. It doesn’t mean your life is over or that you can never leave your house again, or that you’re boring. The place to start is to know that you can have a budget and be good with your money, while still having fun.”

In fact, she believes this is the key to a successful budget: building in fun.

Watch: How to take control of your money in 2021.

That means that while it may seem like a good idea to cut out a daily coffee from your budget to save $20 a working week, the reality is that if that coffee is one of the most enjoyable parts of your day, your budget will make you miserable as it’s too tight.

Then, before too long, you’ll give up on the budget altogether.

“That’s what’s been coming out in the last year or so - ‘cut out your coffee or cut out your avo toast and you can buy a house’ - when really I think that’s not the best way to approach it,” she said.

“That’s where people get really scared off or turned off by budgeting, because they think they need to cut out anything they may enjoy or anything that’s fun.”

Instead, your budget should include social events, nights out and the other things that make life enjoyable.

“You can be saving money and putting money towards your goals and spending money enjoying yourself. Budgeting for fun makes you feel like you have enough money to do the things you want to do, and like your money management system lets you live your life while saving for the future.

“That mindset shift for people is really crucial.”

Got it. Now how do I actually build a budget?

Image: Getty.

There are five steps to building a budget that works.

1. Set up the budget

This means writing down all the money that comes in every month, and everything that goes out.

She suggested looking at the last three months so you can also factor in more infrequent payments like bills and other variable and fixed expenses.

At the end of this step, you should have an idea of where your money is coming from, and going every month.

Apps like Pocketbook and Frollo can help with this, while the Smart Women Society also has a wealth-building dashboard designed to help set and track a budget.

Microsoft Office also offers free downloadable budget templates.

2. Set some goals

“It’s important here to remember that you shouldn’t just be saving for the sake of it,” she said.

Instead, think about what it is that you really want to do with that money, or why you want to have that amount set aside. It could be a house deposit, holiday or even new shoes.

But setting a goal will inevitably trigger more motivation.

Then, think about the time frame in which you want to save that amount of money.

“So if you're trying to save $10,000 in 12 months, this means you divide $10,000 into $834 every month.”

Having that exact figure means you know exactly how much you’re aiming for. Angelos also said it’s critical to allocate some money to a savings fund.

3. Automate

Now you know where you want your money to go and how much you plan to save, the next step is to automate.

That means setting up automatic transfers within your bank account, so that every time you get paid your salary, a fixed amount will be simply transferred into your savings fund. You can also automate bill payments and other set fees.

Where you can’t automate bill payments, you can schedule regular transfers of set amounts into a fund designated for bills, so that when the date rolls around, you’re never caught off guard.

4. Track your budget

There are a few ways to do this. You could write down all the money coming in and out in a diary or on an Excel spreadsheet. Or you can use a tool like the Smart Women Society budgeting dashboard.

Your bank account can also be synced to some apps that will help you track your budget.

“When you’re more aware of your finances and you trust yourself to spend mindfully and not waste, then that’s going to give you more confidence with your money.”

5. Review it and plan ahead

Get into the habit of taking a small amount of time every month to compare your budget to what actually happened to your money. That can be as little as half an hour, with a glass of wine, Angelos suggested.

But one mistake to avoid is thinking that every month should look exactly the same - that just won’t happen.

However, if your projected money plan is significantly different to what’s actually happening, it’s time to tweak.

Then, plan ahead. As Angelos said, your budget needs to factor in fun. That means looking at your calendar for upcoming events and thinking about the little pleasures you value, and working those expenses into your budget.

“Having a budget is finding a plan for money that feels like a natural part of life, it means you’re working towards your goals and are spending in alignment with your values. Money ends up feeling like a tool to live your best life, rather than something that holds you back.”

This February, the Women’s Money Movement is looking at budgeting. Sign up to the free Fully Briefed daily newsletter and join the club on LinkedIn for the next instalment where we look at how to stick to your budget, avoid impulse spending and have fun!