In pretty much any personal finance guide the first step will always be to ‘make a budget’.
Well, let’s be honest, that’s not really very helpful. It might seem like the first obvious thing to do but saying ‘make a budget’ is as helpful to some people as ‘start a diet’ or ‘stop procrastinating’.
That’s why at Nimble, we’ve decided to start at the beginning and put together a guide to building a budget that you’ll actually stick to…
Step 1: Make it as simple as possible
There are plenty of ways to draw up a budget.
You can get crazy with spreadsheets and track your expenses down to your very last cent, but in our experience, the more complicated you make your budget, the less likely you are going to stick to it (you can thank us for that brilliant tidbit later).
To get you started, we’ve set out to sort through all the online budgeting schemes being promoted by financial gurus (hot tip: there are a LOT of them). We wanted to find one that was super simple to understand, implement and maintain.
And here it is:
- You write down your total expected monthly income and split into three income ‘types’.
- The first ‘type’ goes on essentials. Like rent, bills and groceries.
- The second ‘type’ gets saved for investments or ‘big’ purchases.
- The third ‘type’ is spent on luxuries. Things you want and entertainment.
Now, don’t stress too much about the exact percentages of each category. That will depend on your specific situation. The important point is that we’re splitting up your money into three categories: Fixed, Save and Splurge.
Step 2: Get your ducks in a row (and find out how much they cost)
This will be the most time-consuming part of your super simple budget but don’t worry, it only has to be done once. Then you’re set!
To get the low-down on how much you’re spending on the essentials each month you need to crunch the numbers. So, make yourself a cuppa, sit down with a pen and paper and get down to business:
- Bills (Power/Water/Heat)
- Other Essentials (Other payments, Transport, Pet Food)
You might want to include non-essential bills like TV subscriptions, mobile phones, internet or gym memberships. The most important part of what we’re doing here is getting a list of predictable monthly costs, not the bare minimum you can survive on.
Step 3: Make the tweaks you need
Now you have your Fixed Costs.
The less money that has to go towards your fixed cost fund, the more you will be able to Save and Splurge, so you might want to look at downsizing a few things to get the most out of your budget.
Whether it’s working out how to spend less on your weekly grocery shop or finding a cheaper energy provider, finding ways to pay less for your fixed expenses is going to make the next few steps a lot easier.
If you really can’t find any wiggle room, then you may have to downsize your Splurge or Savings, but at least you’ll always know what you’re working with.
Step 4: Put your plan into action!
OK, now you know how much it costs you to live your life every month. That’s your Fixed Costs. Take that off how much money you get each month, so that you can work out your Save and your Splurge too.
Just make sure you separate these little suckers up so you’re not always spending out of the same pot!
And the simplest way to do this is to have different bank accounts for each ‘type’.
To do this, you want to sign up with a bank that will let you set up a high-interest saver account and two standard accounts, each with their own card, without hitting you with too many fees. Check out finder.com.au to find the best option for you.
Once you’ve arranged your accounts, it’s just a matter of creating recurring transfers after payday and you’re budget ready!
Step 5: Track your ‘splurges’ (but don’t let them stress you too much)
First of all: congratulations! You’ve already made your budgeting life a lot easier.
You’ve got your ‘Fixed Cost’ bank account. If you’ve crunched the numbers on your monthly spend, this should go like clockwork.
You’ve also got your “Savings” account, which you can deposit into and forget. Let the balance slowly tick up until you hit your savings goal.
So the only part of your budget you really have to ‘manage’ is your ‘Splurge’ fund.
Luckily, the only rule with the Splurge fund is that there are no rules. You can spend it on anything you want. Great, right? Who thought budgeting could be so fun?
But if you would prefer to have mini-splurges throughout the month rather than blowing it all in a blaze of payday glory, you still might want to track your spend in this department. You can do this with a simple daily budgeting app, like Daily Budget (there is an Apple and Android version, they’re from different people, but they do the same thing).
This app will take your Splurge fund and split it up across the remaining days in the month. When you have Splurge-free days, that amount will go up and if you treat yourself to a fancy dinner, it will go down.
But the beauty of this is everything you buy with your Splurge fund is ‘optional’ anyway. If it runs dry by the end of the month, you just have to wind things down before your next pay date. You can’t accidentally spend your grocery money or savings because they’re in completely different accounts. Just make sure you don’t overdraw to avoid and account fees and you’re golden!
And that’s our five simple steps for a foolproof budget that anyone can actually stick to. Give it a go and let us know how it works for you in the comments below.
You should read this bit: The above post contains links to a variety of application software (“App, Apps”) that is not affiliated or associated with Nimble. We do not have any control or responsibility over the content of the Apps. Use of the Apps may be subject to further terms and conditions imposed by the App provider, the owner of the mobile operating system and/or other related parties. The above links belong to a variety of websites and not Nimble, so clicking on, and using them, will take you away from Nimble’s website meaning we’ve got no control or responsibility over the content. Nimble does not endorse and is not affiliated or associated in any way whatsoever to the businesses named in this blog post. The information in this blog post is general information only and does not take into account your objectives, financial situation or needs. For tax advice relating to your specific financial situation, Nimble recommends seeking the services of a qualified Australian tax accountant. The information contained in this blog is correct at the date of publication.