A household budget can be your best ally, helping you navigate the complicated and sometimes frustrating world of your finances.
The key, however, is to get it right from the start, so you're on solid ground when it comes to building up your savings account.
Fortunately, it's not hard to create a robust budget that organises your spending and leaves enough aside for a rainy day. Ideally, it just needs five key elements:
1. Plan out every cent
A budget is essentially a blueprint for what you are going to spend in the next month. Look through your past bills to work out how much you'll need to set aside for the essential expenses, designate a number you'll want to save each month and work out how much you have left for guilt-free spending. Be sure no stone is left unturned and watch out for commonly missed items in the budget planning process.
2. Know much you make
If you're going to create an accurate spending plan, you need to first know how much you're working with. There's no use establishing a monthly savings total if it turns out you can't afford it. So before you even start to do the above and map out your spending, first have an accurate gauge of what you're making each month.
According to Australian Bureau of Statistics, the average weekly income of full-time employees in Australia is $1484.50 (May, 2015). Your income could be higher or lower than this, but the important thing is to know the exact figure you're dealing with after tax. Gather up your payslips and come up with a figure. Be sure to include other relevant data, too. If you have an investment property, remember to factor in both the rental revenue you receive and, if it's negatively geared, the interest you're paying on your home loan.
3. Treat yourself
Keeping a budget is often seen as a chore — particulary if it is overly stringent. Denying yourself pleasures you would otherwise indulge in will make you resent your budget and potentially lead you to ditching it altogether.
Give yourself some room in your budget to spend money on more frivolous items. It will help you let off some steam but stay focused at the same time. Research by Kristin Neff at the University of Texas, Austin has found that being compassionate to yourself not only improves your psychological health, it also better motivates you.
4. Base yourself in reality
It's self-evident that goals are an important ingredient to success. As the Harvard Initiative for Learning and Teaching has noted, numerous studies have shown that goal-setting is both empowering and helps increase motivation.
However, in our desire to save more, it can be easy to set overly ambitious spending goals. This might include something as misguided as putting aside no money for self-gratifying spending, or assuming that you will save more than is possible. Constantly falling short of such lofty goals not only has the potential to de-motivate you, but it can also take a toll on your happiness.
5. Be flexible
A good budget isn't set in stone. This isn't an iron-clad contract that you're wedded to for better or worse for the rest of your life — budgets should be regularly reviewed and amended as necessary.
As such, you have to design and treat your budget as a living document. As conditions change — you receive a pay cut (or rise), or perhaps your home loan calculator shows a bigger repayment total this month — your budget should be malleable enough for you to shift things around relatively painlessly. When you draw it up, be sure to pick a format that lets you make changes easily from month to month. There are numerous apps and computer programs which can make the whole process remarkably simple.
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