Finding your budget style & making it work for you
Australians pride themselves on having good money management skills; an important part of planning for your future is to budget.
This helps you organize your life as well as create positive financial habits and behaviours.
There are many different strategies to use and you’ll select one according to your preferences, situation, and needs.
The best budget strategies will be explained below as well as definitions and explanations to commonly used terms. If you’re looking at creating a budget, it will be worth it to take a look.
What is a budget?
The only way you can successfully budget is if you know what a budget is. A budget is a written or typed up document, by either the individual wanting the budget or, professionally by a financial expert. This document shows projected income as well as expenditure.
It lists where the income is going as well as what the money is being spent on. It uses this information to plan how all income will be spent effectively and efficiently. It’s a document that helps plan the future of your savings.
Different budget strategies
There are a few things you need to remember when coming up with a budget. Do not look at all the numbers as this will confuse you and make the simple task seem impossible. Credit cards are a big no but, only until you can make your budget plan work.
You are trying to live off funds that you have when making a budget. Adding a credit card to the mix just means you are living off borrowed money. Remember when drawing up your budget that this process takes time as well as patience.
It will not just be perfect the first time and, it does not come naturally. Always track your spending to know exactly where most of your money is going. And most importantly, there is no quick way to save money.
It will take time to distinguish between what you need and what you think you need but don’t really. They are not the same thing. You will only save yourself money by cutting down on those things that you think you need but don’t.
Types of budgeting
This is the easiest form of budgeting whereby you add all the expenses that you accumulate each month and then you subtract that total amount from your total income. Do not include your savings amount in this calculation. Your answer will then tell you the amount that you can spend each month. If you get a negative value, you are spending more than you earn.
This means that all your budgeting must be done in cash. Do not include credit cards or debit cards. This is advantageous as you see exactly where each cent and each dollar is going.
This is done by splitting your budget into categories named needs, wants, and savings. This helps you see exactly where you are spending your money. For example, if 50% of your earnings are going to 'wants', you need to make a change to your lifestyle of spending.
Two bank budgeting
The purpose of this kind of banking is to pay yourself first. This works by opening a second checking account with a completely different bank and then instructing your workplace to make payment into the new account. Then your new bank must make payment into your old account after payday. But they must not transfer the whole amount. Only half. This allows you to save money in your new account without even realizing it.
To do this, you must have a bank with an online banking division as well as the ability to make sub-accounts within your main account. This kind of banking means you must set up that your bills are paid automatically and on time. Simple!
How to come up with a strategy?
In the case of coming up with a new strategy, it is not necessary to be original. There are plenty of great and amazing budgeting strategies to choose from. You just need to find one that suits your needs the best.
When looking for the perfect budget strategy, consider your needs, wants, and goals. Most budgets are short-term plan and this is why businesses review and come up with a new business budget plan each year. So, starting a new budget plan each year for your household is a good step in the right direction and creates positive lifelong habits that can only benefit you.
Organization and money management will be the two top skills that you gain when doing your budgeting. There is no harm in trying it for yourself and seeing whether or not it works before going to a professional. If you do not feel comfortable handling your finances then do not go out of your comfort zone. Get professional help to get the job done right the first time.
Benefits of a budget strategy
- Gives you control over the handling of your money.
- Keeps you focused and directed on your goals and plans.
- Makes you aware of what you are spending your money on.
- Helps you organize your savings as well as your spending.
- Makes you plan how you will let your money work for you.
- Helps you to save for those unforeseen circumstances.
- Allows you to communicate with your partner on spending money.
- Provides warning signs of potential problems that might arise.
- Helps you decide if you can take out a loan, apply for a mortgage or buy a car.
- It provides the opportunity to make extra money.
- Assists you in developing money management skills.
Therefore, there is no best budget strategy, just the one that works for you. Each person will have a different preference and therefore will make the best choice that suits them.
Always consider all of your options before making a final decision. You may overlook something that you think is small but may make a big difference to the overall budget. So, take your time and don’t be afraid to make adjustments and tweaks where necessary.