Budgeting is the process of designing a roadmap for how you plan to spend your money. A budget is simply a money plan to get you where you want to go. Creating your personal money plan gives you confidence. It lets you know in advance that you can meet your commitments, move towards your financial goals, and have enough money to do some of the things you would like to do.
Since budgeting gives you a plan for your income, it can help you to immediately stop the cycle of accumulating more debt. With any debt that you already have, your personal budget is the most effective tool for getting debt out of your life as quickly as possible. Once this is done, you can harness the power of your income to build wealth and enjoy life to the fullest.
Planning your first budget can feel daunting (see our budgeting tips for beginners here), but once you begin to practice it, you’ll get a good feel for how you can start to take control and keep your finances on track. To increase your motivation even more here are some of the main benefits you’ll realise by taking control through budgeting:
1. Get Debt out of Your Life Quickly
Student loans for Uni, taking out credit cards, personal loans, using Buy-Now-Pay-Later products, and buying new cars are just some of ways that many people pile up their personal debt. If this is your situation, please know that this is ok – there’s no judgement here, but what do you plan to do about it? If you’ve decided that it’s time to get debt out of your life, so you can breathe again, then a written budget will get you there – and Quick!
Start by listing out your debts from smallest to largest. This is an important step as facing into this challenge, and getting clear on the details, are both keys to dealing with your debt.
Budgeting will give you a clear understanding of how you can pay down your debt sooner. You’ll find that the focus of a budget allows you to make immediate progress. Being intentional with your money can free up the cash to accelerate your debt repayments. However, if your income is just barely covering your situation, then it is time to make some trade-offs on the expense side. When you make the decision to move past debt, it’s amazing what you can achieve – you can do it.
2. Control your spending
Planning your first budget, or getting back into the flow of budgeting, allows you to examine your spending habits. You’re likely to discover that you’re spending money on stuff you don’t need or truly value. Whether it’s spending for a membership or subscription you don’t use, paying for takeaway or Uber Eats, overspending at the supermarket, or purchasing new clothes when you have a full cupboard already, you can rethink how you spend your money.
You’ll be surprised at how much you can save each month by cutting out unnecessary and random spending. Many people comment that they feel like they’ve been given a raise after they start budgeting. This is simply due to intentionality – you are telling your money what to do and following a plan that is aligned with your goals.
3. Spending decisions get easier
Does guilt free spending sound good? Through using a written budget, you allocate your monthly expenses on items such as food, home loan or rent, transportation costs, streaming services, internet connection, other debt payments, insurance, entertainment, and memberships. You are in full control, and you get to tell your money where to go (instead of wondering where it went). Be sure to include a ‘reasonable’ amount for your spending category and a miscellaneous category too – these will give you the best chance of sticking to your budget.
Once the budget is done, then any spending decision you need to make is far simpler (but not necessarily easy). If it isn’t on the budget then your default decision should be “No.” Now here’s the guilt free part; with anything that has been allocated to a particular area then spend away without guilt – but once that allocation is gone, it’s time to stop until the next budget cycle. It’s ok to spend money if you have budgeted for that item or category ahead of time. The safeguard here is that you are designing the budget, so by default it should be aligned with your money goals.
4. Reduce your stress
Today, money tops the list of the most stressful areas in life for many adults. Creating a written budget will see you back in control of your bank account and breathing a deep sigh of relief.
When you know precisely how much money you have coming and going each month, you can make changes to ensure that you aren’t living above your means. Learning to save more than you spend empowers you to build up emergency funds, plan for the future, and quit living from pay cheque to pay cheque.
Without a budget, it’s almost impossible to track where you might be going wrong and learn which steps you can take to spend less and save more. A budget allows you to take control, make progress towards your money goals and ultimately to win with money – these all feel fantastic. Even if you have a road to travel to get debt out of your life, just by having a plan and following it you will feel the stress falling away with every passing month.
5. Be prepared for emergencies
We all face unforeseen expenses from time to time, from illness, or accidents, or the loss of your job. That’s why you must build an emergency fund to give yourself a financial cushion. Without this you may be forced to use debt such as a credit card when something crops up.
If you need to get started on this, we recommend $1,000 as your starter emergency fund. Later (after repaying all non-home loan debt) we’ll build this out until you have three to six months of living expenses socked away. But $1,000 is the first step.
Get this first $1,000 together as quickly as possible and keep it in a separate bank account to avoid temptation. You can budget your way to the $1,000, or allocate it from elsewhere if you already have some savings, or many people take the opportunity to de-clutter and sell unwanted items that are gathering dust around your home. Use eBay, Gumtree, Facebook marketplace or hold a good old-fashioned garage sale – you’ll pull together the money in no time and you’ll improve your living space as well.
When you create a written budget every pay cycle and stick to it, the payoffs are huge. You are on your way to achieving your money goals, including making the most of your income and getting debt out of your life. All your bills are paid on time, the spending you do is guilt free, and you will spend less than you earn. These are all millionaire habits that you will embed one budget at a time.
No matter how big or small your income, no matter where you stand financially today, everyone can achieve big benefits from budgeting. All you need is a little courage to give it a go.
With the right plan you can get debt and financial stress out of your life forever. Would you like help?
