Budget is not a dirty word

“Budget is not a dirty word, budget is not a dirty word, budget is not a dirty word, don’t believe what you’ve seen or heard” – Sung to the Lyrics of ‘Ego is not a dirty word’ – Skyhooks 1974

Whether you’re from a generation that sang along to Skyhooks classics, or are more inclined to listen to Peking Duk, it’s likely you’ll consider the word “budget” to be a dirty one. Not having one, though, can create huge financial stress and means that many people never achieve their financial and life goals.

Preparing a budget (I prefer to call it understanding your cash flow) can help you get off the tread mill of living from pay to pay and it helps you find the right balance between spending and saving.  In fact, it will tell you how much you have available to put away for holidays and your future, as well as how much you need to put aside for bills and general living costs.

Here are some tips to preparing your budget:

• Start with what you earn (it’s more fun). Include your pay, regular overtime or bonuses, part time work, government benefits and income from investments.
• Work through all of your expenses, including regular bills such as loan payments, rent or home loan payments, utilities, education expenses, dining out , sport and hobbies, travel and everything else. I can provide you with a spreadsheet (all you need to do is ask) or you could use an online budget tool such as this one on the ASIC MoneySmart website.
• Remember to be honest with yourself. Don’t write down $500 for Christmas and birthday presents if you buy for all of your family, your friends and your pets and really spend $3,000!  Likewise, be real about how much you spend on other discretionary items such as dining out and alcohol. Look over your bank and credit card statements if you need to get a better idea.
• Have a think about any expenditure you don’t need anymore.  Do you use that monthly gym membership? Can you cut back to eating out only one or twice per week? Can you quit bad habits that are costing you like cigarettes?
• Once you’ve completed your budget, make sure you have separate bank accounts to put money away into.  For instance, you may have a “Bills account” for the regular bills such as rent, rates, loan payments and you may have other accounts for different expenses.  Think “Holidays and Fun” , “Insurance” and the like.
• One of the most important bank accounts to open is a “savings and investment” account.  This is where your identified cash flow surplus, i.e. the difference between your income and your expenses – will be directed.  It’s this account that will be used to help you achieve your longer term financial and lifestyle goals.
• Get help if you need it.  It can seem daunting (and dare I say, boring) to put together a budget.  If you need to spend a little time and money with a financial planner to get it done it won’t be the worst financial decision you’ve ever made! Feel free to start a conversation with us today.

Remember that getting control of your money, rather than letting money control you, can be one of the most important financial decisions you’ll ever make. There’s no time like the present to start, but if you need to procrastinate make sure it’s high on your list of New Year resolutions!