Do you hear the word budget and think “Yeah, I should do that, but how?” or do you think “Ugh, I can never stick to my budget!” This post outlines how to create a budget plus how to stick to it. Let’s face it a budget is useless if you don’t stick to it!
What is a budget?
Your budget is essentially your income minus expenses. A simple budget has all your sources of income listed plus all your expenses listed. You can see what is being paid when and whether you are living within your means.
How do you work out your budget?
You can use software online, create a spreadsheet or use pen and paper, whatever you prefer.
Write down all your net income (income after-tax). Include wages, Centrelink payments or any other regular income. If you have variable income, as many who are self-employed or work casual do, try to work it out based on the minimum you averaged for the past 12 months or if you are new to a variable income, look at your last few pays to see what you might expect to have as income for now.
Once you know your income, work out your expenses.
What expenses do you have?
Write down every single expense. To give you an idea:
Rent/Mortgage/Board/Accommodation. Check out how to make your home pay for itself.
Food/Groceries. Check out how to get free and super cheap groceries.
Transport such as car including petrol, insurance, registration, maintenance or public transport costs. Check out how to live without a car and how to reduce your transport expenses.
Insurance – home, contents, health, boat, pet or any other insurance you have.
Bills – electricity, gas, water, land rates, mobile phone, internet, landline etc. Check out 17 tips to reduce your electricity bill.
Kids expenses – school, clothing, sports, hobbies, tutoring, extracurricular activities, child care. Check out how to afford school expenses.
Health – doctor visits, dentist, medication, treatments such as physiotherapy or preventative treatments. Check out how to afford medical expenses when on a low income or Centrelink.
Beauty – hair cuts, waxing, make up etc.
Clothing, shoes and accessories.
Entertainment/gifts/celebrations including anything you are invited to, birthdays, Christmas, holidays, date night. Check out our huge list of Aussie freebies too.
Debt – personal loans, credit cards, AfterPay etc. 6 tips to clear debt plus how I am clearing $10,550 worth of debt.
Replacement costs as in when you need to upgrade your appliances, car, phone or similar.
Savings – you should always have a savings fund and put aside some of your income every time you get paid.
List every single expense you have, even the annual ones. Next, work out how often these expenses occur plus how much they are based on your bank statements and bills, not just what you think you spend, then work out an annual total for them.
Once you have your annual totals for each expense, divide the amounts by how often you get paid to know how much you need to put aside for each expense every time you get paid.
For example, if my electricity bill is $340 a quarter I would do $340×4=$1,360. If I got paid fortnightly, I would divide that by 26 to get $52.30. So every pay day, I need to put aside $52.30 for electricity (or have it automatically deducted).
How do you manage to start living within your budget
In an ideal world, you’d be able to split the expenses each pay day into the sections you need and it would work beautifully from the start. Generally, it takes weeks to get the budget on track as some weeks you will have big expenses, other weeks expenses will be smaller.
Look at your expenses and the ones which will be due soon, for example, is car registration due next month and now you suddenly need to find $1,000? When are your quarterly bills due and how many things have to come out of this pay?
For the first few weeks, focus on the big expenses coming up while trying to allocate smaller amounts to the other expenses to help build them while staying on top of all your expenses.
If your pay simply is not going to cover the expenses right now and allow you to work out a budget properly, look at how you can make a little extra money right now to cover the larger expenses and allow you to start budgeting properly each week.
Do you have items you can sell (check out how to make $10,000 in a month reselling stuff)? Can you rent a room in the short term? Can you take on extra work, do cleaning or any other side hustle to get extra income for now? Check out 51 ways to make money from home, 10 ways to make $10,000 or 10 ways to make $1,000 this month to help you.
How to cut back if you need to
When setting up your budget you might be surprised how much money you spend in some areas and you may need to cut back. Or, you might feel you have cut back as far as possible. Either way, here are some posts to help you cut back:
31 Ways to save $200 or more plus ways to make money
50 ways to live for free
How we live a fun and frugal lifestyle
18 tips to keep your groceries under $150, including alcohol and cleaning supplies!
How to afford a house when the average Australian home costs over $600,000!
How we cleared $90,000 debt (reader story from friends of mine)
What to do with leftover sausages
The best Australian cash back and discount sites
How to actually STICK to your budget
So you have an idea now of how much you spend, how much you are bringing in, where you need to cut back and ways to make more money if need. That is all well and good but how do you actually stick to the budget?
It comes down to delayed gratification and discipline.
Delayed gratification as in, instead of buying that impulse buy, you manage your money better to get what you really way.
Discipline with spending, avoiding the shops both online and in-person, saving your money and looking to the future for what you really want. Find 5 tips to reduce temptation here.
To stick to your budget, implement some rules and strategies.
1. Leave your cards at home
How often do you spend mindlessly because you have your cards or available cash? Leave it at home. If you don’t have it, you can’t spend it.
2. Plan your outings
Do all your errands on one day instead of making multiple trips to the shops. Plan to catch up with friends at a park or somewhere other than the shopping centre.
3. Have a 30 day list
If you see something you want to buy, put it on a list for 30 days. At the end of that 30 days if you still want it you can look at how you can incorporate it into your budget. Most of the time, you’ll find you no longer want it.
4. Have a goal
My main goal in life is financial freedom so my daughters and I can do what we want, I get quality time with them and we get to travel as much as we want. What is your goal? Are you saving for a house deposit, paying off debt or saving for a new car?
Anytime you are tempted to spend, ask yourself “Do I want this now or do I want my holiday?” this is usually enough to stop me spending.
5. Have visual reminders
When I am working on a goal I have reminders everywhere.
– Goals are written in permanent marker on my mirrors
– I write my goals in my journal every day
– I have a vision board with everything I am working towards
– I have debt repayment graphs or saving graphs I colour in as I put the money where it needs to be to help me achieve those goals
– I have my screensavers and backgrounds on all devices set to a list of my goals or a picture of my vision board
– I change my passwords to match my goal
– I meditate daily and spend time visualising my goals
– I have a calendar up which has everything I am working on, dates I expect to achieve my goals and lists of what I need to do each day to achieve them
– When I had a purse, the photo section held a list of my goals
– Write your goal in permanent marker on your credit card to stop you spending. You’ll see it every time you pull it out
– Work out the compound interest. Download an extra payments loan calculator to your phone and put in it how much your loan is, the interest rate and how long the loan is. Then whenever you want to spend money on something, put that amount into the calculator to see how much sooner you’d pay off your debt if you put that money on debt (or do it with savings if saving for something.)
I take this a step further and transfer the money. I was going to spend it anyway, so I imagine it gone and transfer it to debt or savings. This way the money is actually working for you, not just hypothetically working.
6. Block the temptation
Download and use blockers for your browser. On Chrome you can get one call self-control which you download, then when you need or want to, you can set the site you want to be blocked and time frame you want it blocked for. If you’re having a down day and likely to want to shop up a storm, this can help a lot! Other tips to reduce temptation can be found here, or how to resist the urge to splurge is another article to help.
“Yeah, great, but my money doesn’t cover my expenses! What do I do?”
If you have cut back as far as possible, you need to find ways to make more money. Otherwise, you will continue to go backwards and the further you get in debt, the harder it is to dig yourself out.
How do you budget? What tips would you add?