Effective budgeting should be transformative, not draining

A little effort can yield significant results. If you’re unsure about where to begin, you’re in the right place.

Whether you’re starting your budgeting journey or seeking to enhance your financial management skills, these suggestions, along with our budget planner, will help you become a proficient money manager.

Getting Started

Organisation is crucial when it comes to budgeting. If you’re not naturally organised, no worries. You can easily access our free template below, making budgeting straightforward, intuitive, and highly effective. So, now you have no excuses.

Just input your income and expenses, and the calculations will be handled automatically. This tool will provide insight into your monthly cash flow, which may surprise you even before you start budgeting.

Be Realistic and Joyful, Not Deprived Keep two important concepts in mind:

1. People often overestimate what they can achieve in a year and underestimate what they can accomplish in a decade. Unrealistic goals can lead to frustration and hinder your financial progress. Embrace a long-term perspective, making the journey enjoyable rather than trying to achieve everything in a short timeframe.
2. If you’re budgeting with a partner or others in your household, it’s even better. Mutual support can motivate you and empower you collectively to take control of your finances. Avoid making excessive sacrifices all at once. It’s essential to retain some of the pleasures you enjoy.

Remember, life is meant to be lived, so don’t deprive yourself of all joys.

Emotions and Financial Management

As emotional beings, our financial choices can be influenced by our feelings. Your decisions on a bad day might differ from those on a good one. Automating your financial management while preserving room for spontaneous enjoyment can make a significant difference. Here’s how:

1. Create two accounts – one for bills and one for personal spending.
2. Set up automatic bill payments from your bills account. Evaluate each expense by asking if you need it, want it, or can get it for less.
3. Allocate a specific amount of money (WAM – Walk About Money) from your personal spending account for variable weekly expenses like groceries, entertainment, and more. Calculate your monthly WAM by dividing your remaining funds after paying bills by four.
4. Transfer the weekly WAM amount from your bills account to your spending account.

Remember, your WAM is finite, so don’t dip into your bills account for more. It’s a manageable way to handle some of your budgeting without relying solely on spreadsheets.

Three Transformative Questions

On the budgeting template, itemise all your regular expenditures, from mortgage payments to mobile phone bills. Ask yourself three critical questions for each expense:

1. Do I truly need this?
2. Do I genuinely want this?
3. Can I find a more cost-effective alternative?

It may sound simple, but these three questions yield remarkable power. Many people don’t consider how much they’re spending on things like gym memberships, TV subscriptions, or electricity. By honestly evaluating each expense, you’ll likely uncover potential savings.

Allocating Your Budget

Once you’ve documented your financial figures, it’s valuable to understand where your money goes. While there are no strict rules, a typical allocation might appear as follows:

1. Allocate 50% of your net income to your Bills Account for covering household expenses.
2. Dedicate 30% of your net income to your Walk About Money (WAM) account for variable spending.
3. Allocate 20% of your net income to your future self. Initially, use this 20% to accelerate paying off unsecured debts. When these are settled, embrace the 40/40/20 principle.

The 40/40/20 Principle

If you’re fortunate to have cleared your unsecured debts, consider the 40/40/20 allocation:

1. Allocate 40% to accelerate mortgage repayment.
2. Dedicate 40% to your retirement plans.
3. Reserve 20% to enjoy today or save for more shorter term goals. Invest in yourself, learn new skills, or treat yourself to experiences without incurring additional debt.

This approach ensures that you maintain control of your budgeting, both now and in the future.