11 Easy Budgeting Tips

Buying your first home shouldn’t be a scary or intimidating time. It should be a time to embrace new experiences, new challenges,and an opportunity to grow both in knowledge and financially. Many people don’t know how to go about it though, or where to even start.

​So here’s 4 important tips to help get you moving in the right direction.
I will update my next buying tips soon. As always, information & knowledge is power, so use people who have experience and are trustworthy. Deal with locals, and seek out recommendations from friends.

Do you need to budget? 

U.S. Senator and former lecturer at several U.S. universities, Elizabeth Warren pushed a rule in her book “All Your Net Worth: The Ultimate Money Plan”.  That rule was called the 50/20/30 budget rule. Specifically, allotting 50% of your net income on Needs, 30% on Wants, and the remaining 20% allotted to Savings.
 
While the rationale of understanding what your income is, and allotting specific amounts to needs, wants & savings is sound, I believe that her suggestion that you should allot greater funds towards ‘Wants” over what is put towards savings is not a plan I would recommend, especially for those seeking to buy their first or second home, or those looking to build wealth with a view to an early & comfortable retirement.

​Do you need to budget? Of course you do. But Mrs Warren's 50/20/30 budget may not be the best option for you. 

Why don’t I agree with Mrs. Warren’s 50/20/30 rule

Simply put, it places less importance on building your savings, verses going to the movies, eating out, Netflix or shopping.
 
Her claim of 50% for Needs, is fine, and 20% for savings.  I believe the failing here is that the amount budgeted for Savings should be the other 50% of your net income.
 
What are Needs? - Those items required for survival. Food, Shelter (rent / rates / electricity, mortgage etc), Healthcare, School Fees.

​Not Netflix. Not take-a-way coffees.
 
What are Wants? – These are the discretionary spending items for pleasure; Netflix, Coffees, going out to concerts or shopping.  These are things that can and should be reviewed if they impact on achieving your goals.
 
I’m not saying to not go out or stop having coffees, but weigh these lifestyle Wants against your goals. If the goal is more important, then logically the choice is a simple one, and that is to forego the impulse buy for the long term gain.

Budgeting works

Budgeting is necessary to know if you’re on track to meet your financial goals. So firstly you need to know what your goals are.  Is it to build a deposit to buy a home? Is your goal to buy a new car or take that overseas holiday?  Or is your goal simply to enjoy life and not worry about your ability to meet your bills and lifestyle?
 
So, without a reason or a goal in place, you are already on the back foot if you don’t have a budget in place.
 
Let’s pretend we don’t have Credit Cards for the moment and we still only use cash. Would you fill your car up at the servo without knowing you had enough money in your wallet to cover it?  Would you go to the supermarket and do a grocery shop if you didn’t have enough cash
in your purse to pay for them?  Of course not. You’d make sure you had funds to cover your purchases.
 
In its simplest form, this is budgeting. Living within your financial means by knowing what money you have to cover your expenses.
 
Yes – you could then make an argument for use of credit, such as credit cards, overdrafts / Lines of Credit etc. However, in most cases the use of these facilities is living off the Bank’s money, not your own. In many cases this can lead to hardcore debt which often does not get repaid without significant financial review, refinance, or restructure.
 
You can be smart and use credit cards to make purchases, and by paying off the outstanding debt by the statement due date, you have effectively used the Bank’s money while retaining your funds.  Some Cards may offer rewards such as flight points or gift cards etc, and if planned correctly you can come out ahead when factoring in these Rewards.
 
But this will only work in your favour if you have a budget in place, and you know what you’re spending is within your budget. Discipline is the key to making this work for you. But not everyone has such discipline.
 
So in covering off, the benefits for having a budget in place mean knowledge of where you stand financially; Knowledge as to whether you can achieve your goals financially, and peace of mind in knowing that you can move forward to hopefully have an easier life.
 
The impacts of not having a budget in place include compromises, worries, and a financially uncertain future for yourself and possibly your family.
 
So ask yourself:

• Is it more important to steaming movies, or is it more important to get that new home?
• Is it more important to be wearing the latest fashions which change year to year, or would you prefer to see Europe or the Maldives with memories to last a lifetime?
• Is it more important to eat out on all those take-a-way coffees and gourmet hamburgers, or would it be better to have equity in a new home or own your car outright?

There’s plenty more that can be done to assist achieving your goal, and every budget is as individual as the person making it.

My 11 Top Tips for Easy Budgeting

1. Use a budget tool or App
2. Have an achievable goal. House, car, holiday.
3. Know how much you have coming in. 
4. Open an account for savings, and use a separate account for expenses.
5. Monitor your bank statements. Is there any non-budgeted spending?
6. Review your spending each month. Are you on target?
7. If you have multiple unsecured debts, combine these into one loan if possible.
8. Shop around for better insurance premiums, but beware of cheap Policies that may not pay out.
9. Reduce unnecessary spending: Meals at home; Refill that water bottle; Use the pushbike for short trips.
10. Buy used or secondhand. There’s plenty of cheap, good quality goods sold online for a fraction of the new store price.
11. Sell unused items. That boat that doesn’t get used. Those toys that just collect dust.

If you’d like your personal budget reviewed, or would like to establish a budget but don’t know where to start, please contact me on 0431 418 343.
 
Peter Taffe