Interest rates are rising, rents are going up and the cost of living is the highest it’s been since the 1990’s. So, if you don’t already have a budget in place it might be time to put one together.
Making a budget can be tedious, or even overwhelming but it can really help you feel more on top of your finances and hopefully save some money too.
ELIZA BAVIN: Interest rates are rising, rents are going up, and the cost of living is the highest it's been since the 1990s. So if you don't already have a budget in place, it's probably time to put one together. Making a budget can be tedious or even overwhelming. But it can really help you feel more on top of your finances. Firstly, you'll want to get a good idea of where you're at right now. You can head to moneysmart.gov.au and input exactly how much money you make and then toggle between inputting weekly, fortnightly, quarterly, or annual costs.
So if you get paid monthly but your bills are paid quarterly, just pop those in the tool and it will work out all the maths for you. Once you've got an idea of what money is coming in and what money is going out, then you can look at setting up your budget. Here's a rundown of some three really popular methods. The 50/30/20 budget. Basic idea here is that 50% of your income should go towards your needs, things like rent or mortgage repayments, bills, groceries. You know the drill.
Then 30% is for your wants, like buying a video or a new jacket or going out with friends. The final 20% should be put aside for your savings. If your needs take up more than 50% of your income, look back at the expenses you listed in the Money Smart tool and try and see where you can make some cuts. If you struggle with working out what's a need and what's a want, then there's an even simpler approach.
The 80/20 plan. The 80/20 plan involves putting 20% of your pay into your long-term savings account and then the other 80% is for everything else from the essentials like rent, groceries, and bills, as well as the fun things too if there's anything left. It's a simple approach that means you don't need to divide your money into categories. And the principle is that you get to pay yourself first.
Finally, the envelope system. This method is a little more old school. But it's great for people who like things to be more tangible. The idea is that you plan your expenses for your pay period and use an actual envelope to store the cash for each spending category. So you'd have one envelope for bills, another for groceries, going out, and so on. This way, you can physically see what it is that you are spending and how you are spending it.
If you run out of cash in a certain envelope, that's it. No more spending on that category until the next time you get paid. If you don't want to have envelopes of cash just lying about the house, though, and your bank does allow you to open multiple accounts without extra fees, you can also do it digitally. These are just three ways to make a budget. And there are many, many more out there. They all work, but only if you can stick to it because the best budget is one that you're actually going to use.