Budgeting tips for beginners

Budgeting tips for beginners

Creating a written budget helps you to make healthier choices with your money and accomplish your goals.  But what is the best way to get started?

A budget is a roadmap for where you want your life and your money to go.  Far from holding you back, a budget helps to achieve the life you’ve been chasing through making the most of your income. A budget assigns every dollar of your income a job – and you get to choose where it goes.  It encourages responsible spending through self-imposed limits for items like online shopping, eating out and entertainment.

Formulating a personalised budget is crucial to developing the proper spending habits, setting aside money for the long term, and guaranteeing the money in your bank account goes where it will make the biggest impact. Here are our best tips to making a budget work for you:

1. Keep it simple

When planning a budget for the first time, try to keep it as simple as possible. This way, it’s not overwhelming and you’ll find it easier to maintain the discipline. Budgeting often suggests images of complicated spreadsheets. Instead grab a piece of paper and put how much your take-home pay is at the top – easy done.  Next list down the Big 3 – Food, Shelter (including utilities) and Transportation costs – these are your most important expenses. Follow this up with a bit of spending money (otherwise your new budgeting habit won’t last long) and then your regular payments for credit cards, car loans, personal loans and BNPL (learn here how to get out of debt]).  The key factor is that every dollar must be given a job on paper before your pay hits your bank account.  Then simply follow the plan – if it’s not on the budget then it is not part of your goals.  A budget should follow this simple format but remember it will be different each pay cycle, so you’ll need to re-design it as you go along. 

2. Plan your budget around your pay cycle

If you get paid weekly, then base your budget on a week.  If you are paid monthly, then create a monthly budget.  Understand that the concepts of budgeting are easy, however it’s going to take some trial and error – so go easy on yourself and adjust as you learn.

You’ll soon become accustomed with organising your budget around your responsibilities, your lifestyle, and your money goals.

3. Include a Miscellaneous Category

A budget can always use a miscellaneous category – it essential regardless of your income level because, well, life happens. Having a miscellaneous category stops you “borrowing” (really stealing), from your food money, or worse, from your savings when you are tempted to blow the entertainment or clothing budget.  Stay on track and remember that the budget is your written plan for getting where you want to go.

4. Get High Definition clear on your money goals

Your money goals need to be crystal clear, agreed with your partner, and stuck on the fridge, bathroom mirror or both.  Without clarity and regular reflection on your goals (this is your Why) the motivation for completing a budget can disappear fast.  These are your most important money goals, so once you are clear then it’s time to manage your budget towards achieving them. Whether it’s paying off all your debts (credit cards, personal loans, car, and student loans), saving the deposit for your home, building a stash for the next family holiday, or saving for retirement, creating a written budget will get you on track and make it happen.

5. Build an emergency fund

Emergencies can arise anytime, and they cannot be avoided.  That’s why you should plan for them.  Creating an emergency fund enables you to have money set aside for when life happens.  It empowers you to pay for things like a medical emergency, a new tyre or car repair, or an oversized and unexpected bill, without having to depend on debt.  With an emergency fund you’re combat-ready, otherwise an emergency can blow up all the hard work you’ve done on your budget.

Having an emergency fund in place feels amazing – aim to get $1,000 set aside (not in your regular bank account) as quickly as possible.  “One thousand dollars doesn’t cover much,” I hear you say.  You’re right, but this is only your starter emergency fund, and it will stop you creating more debt when things happen.  Also, once you’ve cleared all your non-home loan debt, this should then be built up to represent 3-6 months of regular expenses.

Put simply budgeting will get you where you want to go.  It is one of the key habits that everyday millionaires use to take gain clarity, take control, and win with money.  Budgeting also helps you gain visibility on your spending habits—good and bad—then you can maintain or correct them respectively.  Your budget is also a great reality check to look at any expenses you can reduce or do without and have an accurate picture of the money coming and going.

Finally, budgeting will equip you for any unexpected expenses or financial setbacks and put you on the path to achieving your goals. Understanding your finances through the lens of budgeting in essential if you want to win with money. 

“Money is a terrible master but an excellent servant.”
P.T. Barnum
American author