Having a goal — whether it's saving up for a home loan deposit or building up a rainy day fund — requires financial discipline. You have to set constraints on yourself and do everything you can to make sure you're putting away the requisite amount of your income toward your goal.
The traditional, and arguably most effective, way to do this is to draw up a budget. A budget will essentially outline where your money will go for a particular period of time, whether a week or a month, before you get around to even spending it. By pre-empting your expenses and organising them, you have a better idea of how you can save even more, and what activities to cut down on.
No one said this was easy. As standard as making a budget is, if you don't have experience with how to budget, it can be quite the laborious task so we have a budget template that will help you on your way, plus some useful tips that will help you make sure that money is flowing into your savings account as it should.
List your expenses
The very first thing you should do is make a list of your weekly and monthly expenses. This means everything, from the muffin you buy every Thursday lunchtime at that cute little bakery down the road, to your bills and rent.
You'll want to note down everything and group it under categories like:
Now you know exactly where your pay cheque is going, as well as where to reduce your spending. If you're shelling out a lot on bills, for instance, it may be time to cut back on your energy usage. If leisure and entertainment is costing you plenty, then a lifestyle change may be necessary.
Decide how much you need to save
If you haven't yet figured out how much you actually need to save, then this is a good point at which to do so. Work out the cost of the particular goal you're saving for. You won't necessarily be able to nail down an exact sum for every goal — some have a cost that can only be approximated. Nevertheless, it'll give you an idea of what you should be aiming for.
Then, jump onto a savings account calculator and see how quickly your savings will grow. This will give you an idea of how much you need to save each month.
Work out where your priorities lie
Once you know where you're putting your money, it's time to work out what your biggest priorities are. There is a big difference between wants and needs. Obviously, bills, including insurance payments, are mandatory. Same with rent and, to some extent, transportation. Finally, the amount you're moving into your savings should be off limits.
Everything after this, including food, is discretionary spending. You can always save more by eating a little less luxuriously or taking fewer trips to the cinema — not to mention skipping the weekly drinks session from time to time. These are all less important, and so can be played around with.
Track your spending
Tracking your spending with a budget planner will help you understand where your money is going and keep you focused on your goals. A simple budget template will get you started, or there are countless electronic tools that you can use to make this process simple. For instance, the Australian Securities and Investments Commission's MoneySmart website has its own "TrackMySpend" app, which lets you record your expenses on the go. There are also many other commercial apps made by private designers.
Start an automatic savings plan
You've comprehensively planned out your spending and made sure to leave those lunchtime muffins out of your regular expenses. You know exactly where your money is going and how much you're meant to be saving.
But making a budget and actually having the discipline to stick to it are two different things. In order to help ensure you aren't tempted to spend the money that should be going into your savings, start an automatic savings plan, so a sum of money is transferred from your regular bank account into your savings account without you having to do a thing.