Opinion
How to get on the right track when it comes to budgeting
Dominic Powell
Money EditorReal Money, a free weekly newsletter giving expert tips on how to save, invest and make the most of your money, is sent every Sunday. You’re reading an excerpt − sign up to get the whole newsletter in your inbox.
For someone who knows a thing or two about money, I admit I started budgeting very late in life and, even then, I’d only call it “budgeting” in the loosest sense of the word. More of a free-form, vibes-based way of allocating my finances every month, certainly not on-par with the rigorous tracking systems many other people use.
Many people shy away from tracking their spending, even though knowing where your money goes is vital to budgeting.Credit: Aresna Villanueva
Regardless, the difference in my quality of life between before I started tracking my spending to now is like night and day. Turns out it’s pretty good knowing where your money goes each week and not being sucker-punched by unexpected direct debits. Who knew?
What’s the problem?
Despite this, it’s still something many of us shy away from, with recent research from comparison house Finder showing one in eight of us not tracking our spending, with a total of 2.6 million Australians having no idea where their money is going.
Thankfully, the rest of us say we do track our spending, at least sometimes, but if you’re part of that 2.6 million – or if you’re just someone who thinks your budgeting skills could be improved – then it might be time to get started.
What you can do about it
There’s been enough written on the importance of budgeting in personal finance to stretch from here to the moon and back. This can be a bit daunting, especially if you don’t know where to start, so here are some tips to get you on the right track.
- Make your bank work for you: The days of banks and bank accounts being inscrutable monoliths are, thankfully, pretty much over. All the big four banks have updated their apps recently to include a bevy of features to make them more user-friendly, including – crucially – the option to be notified on your phone each time you are charged or money is deposited in your account. We lose hundreds of dollars each year on forgotten or unintended direct debit charges, so doing this means you’ll never be surprised by a charge again.
- Work out where you’re starting from: Stephen Mickenbecker, group executive of financial services at Canstar, recommends anyone who is looking to tackle budgeting for the first time should work out what their baseline is, and work from there. “At the end of each month do you find that you have surplus money that can go into savings or are you dipping into savings or using credit to make ends meet?” he says. “This will give you insight into the challenge and its depth and urgency.” The easiest way to do this might be to print out your bank statements and go through them with a pen.
- Categorise your spending: From here, Mickenbecker advises you should tally up your spending and sort it into different categories, such as big bills, spending on essentials (such as food, healthcare, etc), mortgage/rent payments, and then other discretionary purchases. After this comes the hard work of actually reducing your expenses. Discretionary purchases can be an easy place to start, but the real savings, Mickenbecker says, are in your big bills. Comparing and hunting around for savings on insurance and utilities can help you find extra money each month.
- Set SMART goals: A goal without a plan is just a wish, according to money expert at Mozo Rachel Wastell, so starting budgeting with a clear goal in mind can help make it feel less overwhelming. She advises following the SMART (specific, measurable, achievable, relevant and timely) methodology. “Clearly outline what your money goal is, define how you’re going to measure your success, think about how long it will take you to get there, and make sure it is realistically achievable,” she says. “Aiming for $300/week savings when you only have $100 spare after you pay your bills won’t get you where you want to go.”
Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.