Budgeting is a word we all know but is it something you do? How are your budgeting skills? Have you had budgeting success or is this something you think you could do better?
In this topic you can share budgeting ideas and attitudes, find out how to overcome barriers to budgeting success, learn and practice your budgeting skills.
Here are some of the ideas you can look at together:
The benefits of budgeting
Budgeting is simply keeping track of money coming in (income) and money going out (expenses). A budget helps you to work out what you’re spending your money on, and when. It increases your control over your money.
Budgets can be built for a specific event e.g. a fundraising dinner, or for your personal finances. Having a budget allows you to make informed, purposeful decisions and to allocate your money in a way that enables you to reach your goals.
An effective budget is one where the amount of money coming in (income) is enough to cover your expenses plus your future plans.
Something to think about
“A budget isn’t about restricting what you spend. It gives you permission to spend without guilt or regret.”
“A budget is telling your money where to go instead of wondering where it went”
Source: Dave Ramsey, Budgeting Made Easy
Personal budgets are tailored to your life, reflect your individual circumstances and will change over time in response to life events.
For example, a personal budget for a student living at home would include education needs such as textbooks. A personal budget for a parent with young children would include rent/mortgage charges and childcare costs.
Event budgets are tailored to the event, reflecting what the event is aiming to achieve. For example, the budget for a fundraising dinner could include the cost of raffle/auction items, advertising for the dinner and the revenue achieved from ticket sales.
How is your budget working?
A personal budget with more money coming in than going out means you are ideally placed to plan for some long term goals.
A personal or event budget with more money going out than coming in could mean that you could end up in financial difficulty.
How would you describe your personal budget? Does it need more balance? Is it time to think about planning long term goals?
Have you helped to prepare an event budget that needed more balance? How did you manage it? What was the result? What would you do differently?
Breaking down your budget
Expenses can be broken down into 4 main categories:
- Fixed expenses
- Developing financial wellbeing
- Variable expenses – essential
- Variable expenses – discretionary
- Fixed expenses:
- Rent or mortgage repayments
- Utilities – gas, water, electricity, internet, mobile phone plans
- Subscriptions – gym, pay tv
- Transport – car registration, repayments
- Developing financial wellbeing:
- Paying down credit card debt
- Saving for a goals
- Building (and topping up) an emergency fund
- Saving for retirement (superannuation)
- Variable expenses (essential):
- Transport – petrol, tolls, fares
- Variable expenses (discretionary):
- Eating out
- Personal care
Some experts recommend splitting a budget into:
- 50% Fixed expenses
- 20% Developing financial wellbeing
- 30% Variable expenses
There are no hard and fast rules – What would work for you?
Set up and manage an emergency fund
Having an emergency fund could help you to avoid accumulating a debt if you meet major unexpected costs.
Unexpected expenses can arise without warning for anyone.
Major appliances and vehicles can breakdown, medical emergencies can require treatment costs and/or time off work (this might be unfunded by sick leave if you are a casual worker) and any of these could have a major impact on your budget. When people are faced with such emergencies and have no savings, they can accumulate debt that will have a long term impact on their financial wellbeing.
Think about what would work for you. It could be as simple as setting up an account that is separate from your weekly transaction account. Think about how much you can afford to put aside and if your income is regular enough, you could set up an automatic transfer. A helpful rule of thumb for the size of an emergency fund is 3 months of living expenses.
Budgeting success means:
- Creating a balanced budget
- Keeping on track with your budget
Balancing a budget can be tricky sometimes, particularly if your income is uncertain or irregular.
If your expenses are higher than your income, you could:
- Review your discretionary expenses such as eating out and entertainment
- Tip: it can be hard to make big changes – make it easier by introducing small changes gradually
- You could start by reduce spending in one area at a time, for example start by reducing eating out, then move on to looking at your mobile phone plan
- Try to use creative thinking – have fun and challenge yourself to do things differently rather than simply imposing restrictions
If the imbalance persists you could:
- Try to increase your income by changing jobs or getting an extra job
- Increase your skills through further education to improve your chances of a new job/increase in pay
- Find out if you are entitled to income support at Department of Human Services
It is easy for budgets to get derailed when you have to pay for unexpected events
- Give yourself options by budgeting for an emergency fund
Budgeting on your own is enough of a challenge. What happens when you budget with others, such as a partner or flatmates? Here are some more tips:
- Set out ground rules of how bills are to be paid, who is paying, and when
- Tip: Set up a shared spreadsheet on google docs or use a communal expense diary or check out apps that are available for managing shared expenses
- Communicate about how you want to share household costs.