New year, new you? Finances are a common feature of a lot of New Year’s resolutions, and for good reason. Many of our big goals – going on an OE, joining the gym, buying a house – require funding, and that means it’s time to start thinking about a budget.
Start by counting what you make and what you spend
First, it’s important to figure out how much you actually have to work with. Add up everything you make in a month. This should be everything from your job to side hustles to any investments.
The next step when starting any budget is by figuring out where your money is currently going. Those who don’t learn from the past are doomed to repeat it. Write down all of your expenses in a month.
If you need help visualising this, try our Track My Spending tool. It will show you how much you’re bringing in each month and how much you’re spending, so you can see if there are any leaks that need to be plugged. Learn more about it here.
Know what you need and what you want
By seeing your income and expenses side by side you’ll be able to start planning your budget. If the expenses are higher than your income, you’re living beyond your means and will need to make some adjustments.
Go through your list of expenses and mark the essential costs (rent, bills, groceries, savings etc.) and the nice-to haves. When divvying up your income, start by putting money towards the needs before your wants, to make sure those are covered first and you don’t run out of money. It’s also a good idea to put money aside for unexpected expenses (visits to your doctor, a flat tyre). If you’re flatting, the last thing you want to do is be that one housemate who can’t afford their bills. If you are that housemate, this article can help with your flat finances.
Here’s the part where it’s easy to stumble. Our brains don’t like long term goals. They’re hard to visualise and not nearly as satisfying as achieving something right now. Because of that, we often try to reduce the time by increasing our regular savings, giving us less actual spending money week to week.
Say your long term goal is a $10,000 OE. Putting aside $65 a week will get you there in a little under three years. Can’t wait that long? You could do it in six months, but you’d be putting $385 a week towards it. It might be doable, but that’s $320 a week that doesn’t go towards your bills, your food or anything else you might want to spend that money on.
Spread yourself too thin, the pressure mounts trying to live off the bare minimum and slip ups become more likely. We all need wiggle room. How much will vary person to person, but it’s important that you can still enjoy life within your budget. It might take a little longer, but if you’re honest with yourself you have a much higher chance of reaching your goals. If you’re struggling, a good rule of thumb is the 50/20/30 rule.
Out of sight, out of mind
The best way to keep yourself from dipping into any savings is to remove them from your mind completely. You can hide your savings account by logging into FastNet Classic, clicking on your name in the top right hand corner and choosing ‘Hide or Show accounts’ from the list. Set up a regular direct debit that transfers money to your savings account on the same day your pay comes through so you never have to touch it to begin with. If you never see it, you can’t miss it.
Watch the video below for more tips for setting up your budget. Are you a tertiary student? Check out this article for ways you can manage your finances while you study.