Getting yourself into good financial shape starts with making a budget. Improved financial wellbeing, saving more and stressing less – sound good? Here are four steps that might help you take control of your finances.
Step 1. Record what you earn and spend
Having a clear idea of your finances is the very first step in making your budget. So, go through your bank and credit card statements to work out how much money you have coming in each month, and how much is going out.
Health Professionals Bank provides a free online budgeting tool to make it easier. But if you’d prefer, you can use a spreadsheet or pen and paper.
Your next step is to categorise your expenses into essentials (expenses you can’t avoid, such as rent or mortgage, food, utility and phone bills, etc.) and wants (takeaway meals, going out, hobbies). Again, it’s a bit easier if you use a budgeting tool.
Look at how much you need to set aside each pay to cover essential expenses. What’s left is what you can use to pay down debt, start saving towards a goal, and have fun!
- Record everything you earn and spend during a month.
- Include occasional expenses such as haircuts and servicing your car.
- Break the bills you pay each year or quarter into monthly costs.
- List your debts including, for example, your HECS and what you owe on your credit card.
Step 2. If you’re spending more than you earn … cut back
If you have been spending more than you earn, it’s likely you’re using credit to cover the gap. It’s important to get your budget back in the black and even find some money to save.
Reviewing how much you spend on ‘wants’ is the easiest place to start.
It’s also likely you have a few ‘spending leaks’ you can plug easily. Spending leaks are those small, regular expenses that add up and make a big dent in your budget over time. For example, buying a $5 takeaway coffee every day adds up to a massive $1,825 over a year.
- Review your spending to find ways to cut back.
- Add up ‘spending leaks’ over a year.
- Gym memberships and entertainment subscriptions could be replaced with workouts at home and free streaming services from your local library, SBS On Demand or ABC iview.
Step 3. Set a spending and savings plan
When you have a budget, it’s easy to work out how much you can save or use to pay off debt. Some people use a 50:30:20 rule to set out their budget. That means:
- half your take-home income goes toward essential expenses
- 30 per cent goes on discretionary spending
- 20 per cent goes towards savings or paying off debt.
You may need to adjust those ratios to suit your situation. One rule of thumb is to save at least 10 per cent of your take-home pay, but saving any amount so you’re not living payday to payday can help ease stress.
To motivate yourself, set a savings goal that’s meaningful and exciting for you.
- Pay off loans with the highest fees and interest rates first, such as Buy Now Pay Later debt and credit card debt.
- Include the amount you want to save in your budget as an expense – that way you’ll put a fixed amount away.
- Set a savings goal.
- Have an emergency fund as well as savings for a long-term goal such as a home deposit. And it’s good to have a buffer for unexpected emergencies such as car repairs.
Step 4. Establish separate accounts and track your progress
Keeping your money in separate accounts makes it much simpler to stick to a budget and achieve your savings goals. You can set up an account to cover regular bills and expenses, have another for your weekly spending money, and a savings account that pays higher interest.
- Set up separate accounts for your everyday banking and your savings.
- Use a mobile banking app to track your spending. In the you can turn on ‘How I Spend’ via ‘My Settings’.
- Use payment reminders and alerts to avoid late payment fees and take advantage of pay-on-time discounts.
- Adjust your budget as your circumstances change, such as a pay rise or an increase in your expenses.
The good news is there are plenty of free tools that make budgeting easier than you think. Start today and you’ll get on top your finances and be on track to reach your goals sooner.
Keeping your money in separate accounts makes it much simpler to stick to a budget and achieve your savings goals.
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This article was sponsored by Health Professionals Bank
This information is general in nature and does not take your personal objectives, financial circumstances or needs into account. Consider its appropriateness to these factors before acting on it.
Membership eligibility applies to join the Bank. Membership is open to citizens or permanent residents of Australia who are current or retired employees in the Australian health sector or are family members of members (i.e. shareholders) of the Bank. Teachers Mutual Bank is a division of Teachers Mutual Bank Limited ABN 30 087 650 459 AFSL/Australian Credit Licence 238981.
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