Tuesday, 25 November 2014

How to Budget on a Budget

I’m a sucker for pretty stationary – set me loose in a Kikki.K store and I’ll spend $100 without even thinking on a whole heap of stationary that promises to keep me organised but is now, months later, still sitting on my bookshelf unopened (hello recipe book purchased 3 years ago that is yet to have a single recipe written in it!!)

I have slowly worked out you need three things to set up a budget; a pen, a notepad and envelopes. Why envelopes? Because that is where your cash goes and when you’re on a budget and you want to stick to it, you pay everything in cash. Cash is money you can see. You can see how much you have, you can see how much you’re handing over and more importantly, you can see how much you have left. In an age of plastic it is way too easy to just swipe a card and ta da I now magically own this item. At the same time, my back account is depleting faster than I have noticed and before I realise it there’s not a whole lot left in there. So cash it is. I remember as a child my parents would use the envelope system (well mum would use a zip lock bag which is also a great idea because you can see how much is in it) for holidays. In it would be the fuel money, the food money and the spending money. There was no dipping into extra funds if there wasn’t enough in the zip lock bag. It took great saving skills for us to even be able to go on a holiday and mum made sure everything was accounted for.

Now, the pen and notepad. You need to actually write out your budget. I know this sounds simple and some may think unnecessary but physically writing things down keeps us accountable. I know I have far too many things going on in my mind to actually remember that this fortnight I also have to pay for dog registration and swimming lessons for the term. Writing it down ensures it won’t be forgotten and also ensures you have a clear picture of where all of your hard earned CASH is going.

You also need to write new budgets on a regular basis, depending on how often you get paid. For us, we get paid fortnightly so we write a fortnightly budget, if you get paid weekly then do a weekly budget. If you get paid monthly things always tend to be a little more difficult as bills may come in within that month that you may have not accounted for if you do a monthly budget. I would recommend dividing your pay in half (keep half in a savings account or offset account) and do a fortnightly budget. There is extra restraint needed here as you need to make sure you don’t go dipping into your next fortnights ‘pay’. You can also save extra interest though by paying it into an offset account. It would be rare for your budget to be exactly the same two times in a row – there are always new things that pop up, whether it is a extra trip away where you need more fuel or a phone bill that comes in. This is why it is so important to write a new budget for each pay.

So, from your budget you will be able to tell how many envelopes you need. Label each one such as ‘groceries’, ‘fuel’, ‘spending money’ and put the cash in there that you have budgeted for. I understand that now we also have a lot of bills paid via direct debit or BPAY. Make sure you pay your BPAY bills first, on the very same day you get paid, then withdraw the remaining cash, with the exception of any money needed to be left for direct debits. You won’t be able to accidently spend this money as you will know the only money in that account is going to be taken in direct debit payments. Now fill those envelopes up. It may take a few budget attempts to finesse where your money is actually going. For example, we had thought originally that $300 per fortnight would be enough for groceries but after a few budgets we realised that we really needed to increase it to $400 to then include the ability to buy meat in bulk. You’ll be surprised at how much you can save simply by physically seeing where your money goes and not allowing the sneaky little purchases here and there.

A few extra tips:

Make sure you allow in your budget money to spend to spoil yourself. You will never stick to a budget if you don’t have a realistic amount of money to spend on yourself. You’re important too!!

Pay extra money off your debts with the highest interest first. Usually this goes credit card first, followed by personal loans, then the home loan. Also speak with your bank if you have both personal and home loans, they may be able to roll them all into one for you, reducing the interest significantly. (Do be mindful of new loan fees etc – you may save $300 in interest but have to pay $600 in loan fees.)

Shop the catalogues. In my town we have a Coles and Woolworths, and while I was a devoted Coles shopper for many years we now use the two interchangeably. Their catalogues usually come out each week and their specials usually start on a Wednesday. I pay particular attention to higher ticket items – cleaning products, toiletries and food we use often. There are regularly half price specials that allow me to stock up on more of that item at that time.

Meal Plan. I have to admit, I am pretty bad at this but the times we do use a meal plan we see a marked decrease in how much money we spend on food that fortnight.

Do you have any budget tips or tricks that work for you??