Budgeting is a fairly simple concept. It is ensuring that you are spending less than you are earning and that you are putting funds aside for both short and long term needs.
Budgeting is a key to your financial success. Think about budgeting as proactively managing your personal finances. All you are doing is creating a Personal Cash Flow Statement.
It is the positive cash flow from your personal cash flow statement that will allow you to increase your net worth. Understanding where your money goes and getting control of your spending habits will mean that you have taken the first step on the path to financial security.
How do I start?
Explore this section to find a way to become the great ‘personal money manager’ that really suits you. There is so much information on budgeting available that we haven’t tried to replicate it here. What you will find below is a range of links to resources and articles specifically focussed on budgeting that will help you to develop this important skill.
Income and expenses
Taking stock and determining where your money is going is the first step.
To create a draft budget visit one of the highly recommended budget resource websites below. We suggest that you work through the calculators and templates and create your own ‘Personal Cash Flow Statement’. Make sure you print it out for your records and then come back here to learn more about developing good money habits.
Budget resources (Highly recommended)
MoneySmart is a fantastic new website from ASIC which has a good section on Budgeting and an Excel spreadsheet that you can download and customise. Check out the video, case studies and the page on ‘How to Do a Budget’ for some tips and information on budgeting.
Savings Guide is a blog that has a lot of useful information. Take some time to explore the blog topics on budgeting. If you are struggling with the whole concept check out the 50-30-20 budget blog page – perhaps this approach may suit you better.
Barefoot Investor is a down to earth investing website. Follow this link to an interactive online budget planner. For those struggling to stick to a budget this calculator can give you an overview of where your money is going.
Developing good money habits
Developing good money habits will help you to stay on track and reach your investing goals. You need to know when you have plenty of money and when you need to be more careful.
The following are some of the key money habits which you may want to explore:
Pay your self first (PYSF)
A simple yet very important key concept that you need to understand and implement to be a successful investor. By putting aside at least 10% of your income and using those funds to invest you will incrementally grow your wealth over time.
To learn more read this short but powerful article on the PYSF strategy from JD Roth.
If you need motivation and a real exercise to get you started, go this blog post from Brian Tracy.
For down to earth tips on how to get started see the PYSF article by Dennis Harting.
Controlling your spending
If you are struggling to keep your spending under control, you are not alone. See these recommended websites for hints and tips to help you start to reduce your spending.
Savings Guide - Ways to reduce your spending and start saving
Investopedia - 5 ways to control emotional spending
Hype - Budgeting guide for young adults which includes some great tips on controlling spending.
Paying your bills on time
Part of keeping on top of your budget is making sure you pay your bills on time and avoiding late, overdrawn and unnecessary bank fees, where you can. It all comes down to good time management. To get you started here are a few links to some recommended articles and blogs on managing your bills:
JD Roth explains how paying your bills as they arrive helps financially and psychologically.
Savings Guide explores ideas on how to pay your bills on time.
Effective Time Management Tips has tips on keeping your bill paying organised.
Mistakes to avoid
Being aware of the pitfalls can help you avoid them.
Explore these recommended sites to get an overview of some of the more common budgeting mistakes:
David Koch talks about common financial mistakes at his blog.
See the Financial Edge article on the 11 Most Common Budgeting Mistakes.