Coming up with a budget can seem like a terrifying task. I know, I’ve been there. People say that budgets don’t work, that they’re too hard, that they’re unsustainable. But what if I told you that all you’re really afraid of is taking responsibility for your own finances? What if I told you it doesn’t have to be scary? Well, buckle up, princess. I’m going to take your hand and walk you through this, step by step.
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There Are Only Two Ways To Save Money
I’ve heard it said that there are only two ways to save money, and it’s true. The first time I heard this, I was blown away by how simple this concept is.
Are you ready?
There are only two ways to save money:
- Spend Less
- Earn More
What does this mean in real terms? It means that if you aren’t saving, you either don’t earn enough, or you spend too much. Don’t stress too much about it, just commit to doing something about it. Learn how to budget.
To make this easier, I’ve put together a workbook, which you can download for FREE here! Yay!
The first step when coming up with your budget is to visualise the kind of life you wish you had. Let me be clear about this, though, it’s only an exercise. Think about the things you want. Spend 10 minutes dreaming outrageously about what you would do if you won the lotto and write everything down.
Would you buy a house? A car? Go on a holiday? Maybe you would blow it all on chocolate and doughnuts. Think of all the things you wish you could do, but can’t currently afford.
Think about all the pictures you see in magazines that make you wish you had more than you do. Imagine if all the things you saw on Pinterest were an option. Don’t hold yourself back in this step.
Assess Your Vision
Now that you’ve dreamed about your ideal life, I want you to identify any common themes. Maybe what you really need is just a holiday. Perhaps you’re tired of renting and feeling as though you’ll never be able to afford a house. It could be that you just really want a new motorbike.
You can use this dream list to figure out what’s really important to you.
Identify one long term goal and one short term goal that you want to work towards and write them down.
Figure Out Your Incoming Cash
Let’s dig into the paperwork with an easy one. Hunt down your payslips and payment summaries and figure out how much you earn every week. The reason for a weekly budget is that it’s easier to keep track of where you’re up to in a shorter time-frame. A monthly budget is just way too much work.
If you’re getting paid monthly, divide it by four. If you’re paid fortnightly, divide it by two.
Write it all down and add it up. Don’t worry too much about calculating how much interest you’re earning on your savings, or the $30 you get here and there from owning a few shares, just focus on your main income.
There’s a chance you’re currently wondering where all your money went. Try not to worry too much about it. We’re going to figure out where it’s all going in the next few steps.
Calculate Your Fixed Expenses
This step is a hard slog. We’re going to sit down and figure out how much it costs you to live every week. The time has come for you to gather all your receipts, recurring bills, and admit how much you’re spending on bottled water.
We need to break this down into categories to figure it out, otherwise it’s too overwhelming. We’ll start off with:
- Phone and Internet (including mobiles)
- Minimum Debt Repayments
You can add more categories if you need to, but just add up the things that you absolutely can’t live without.
If you can’t find every bill or receipt, it’s okay to make an educated guess for now.
With any luck, your expenses at this point will be lower than your income. If your fixed expenses are higher than your income you are going to need to work out where in your budget you can afford to make changes. One of the easiest things to cut down on is usually groceries, but don’t discount choosing to ride your bike to work occasionally. I have a list of ways you can save money if you need some inspiration.
Keep tweaking your fixed expenses where you can. It pays off in the end, and we all love the feeling of getting a good deal, so keep at it. You’ve got this.
List All Your Debts (Except the Mortgage) And Commit To Paying Them Off
This is a depressing list. This is the list you have because you bought things you couldn’t afford. It’s the list you have because you don’t like little, economic, second-hand cars. This is the list you have because you didn’t have savings and you had to go to hospital or because your dog got hit by a car.
This is the list you need to forgive yourself for.
I cannot stress how important it is that you forgive yourself for past mistakes, and for bad luck. Sometimes things happen, we get hurt. Occasionally we decide that we deserve things we can’t afford because we’re sad, and hey, everyone else has a fancy car.
Well, guess what. It’s time for you to stand up and take responsibility for your money. It’s time to stand up to the advertisers and the Joneses. Now is the time to stop pretending that debt is okay.
If you owe money on your credit card, pay it off. Car? Pay it off or sell the damn thing and buy a second-hand Yaris. Personal loan from that time you went to hospital? That sucks, but pay it off anyway.
Every debt you have is sucking money out of your pocket and putting it into someone else’s. If you don’t believe me, add up how much you’re paying in interest every year and figure out how many hours you have to work to earn that amount. Do you see what I mean?
Now, apologise to yourself, forgive yourself, and promise yourself that you will pay off all of your debts. And then actually do it.
Savings – You Freaking Need Them
We don’t have a credit card. Why? Because we have an emergency fund instead. You need to do this. This is the money that puts a spring in your step. This is the money that sits there in a (high-interest!) bank account and earns more money, just for existing!
Start by saving $2000. Put it in a high interest account and leave it there. Don’t touch this for anything that isn’t an emergency. If you have a credit card just for emergencies, this is the account you use to replace it. There is something very powerful about knowing that whatever life throws at you, you’ll cope. There’s something comforting about knowing that if you get sick, you’ll get through it without losing everything you own.
Having savings makes you independent. It makes you stronger.
Make Your Dreams Happen
Savings have another power. They can make your dreams come true. How? Well, I’m glad you asked.
You remember how I made you write down a short term and a long term goal? Well, once all your debt is gone, it’s time to make your goals happen.
Write down how much you think each goal will cost you. If your goal is to go on a holiday, look up tickets and accommodation. Find out approximately how much you need.
Set a time frame on your goal. Say that you want to save enough for your holiday in one year.
Divide your goal amount by the amount of weeks you have to save it, and you have the magic number of how much you need to put aside each week to make it happen.
For example, if you want to save $5000 in one year, your formula would look like this:
5000 ÷ 52 = 96.15
So you would need to put aside $96.15 every week for a year to reach your goal.
If you don’t have enough left after your fixed expenses to cover that much, you might need to adjust your plans a little bit. Maybe you need to save up across two years, or maybe you need to consider cheaper accommodation or flights. Either way, you can still go on your holiday, it just takes a little bit of compromise.
If your goal is to buy a 4 bedroom house, and you can’t afford it, maybe you could make do with a 3 bedroom house, or you could buy a 4 bedroom house in your second favourite suburb.
The other option is (you guessed it) that you could work your little butt off to make the extra cash. Get your side hustle on and hustle as hard as you can.
Do this for each of your goals and tweak until you can make it work.
No one gets the world handed to them on a platter, so roll with the punches and make it work for you, on your terms.
The Importance Of Pocket Money
No one likes to feel poor. It’s hard to watch all your friends spending their money like it grew on a tree in the backyard, but it’s worth it to earn financial freedom.
It’s important to remember though, that sometimes you need to blow off some steam. Sometimes you need to spoil yourself. Sometimes you want a small reward now to remind yourself of why you go out and work so damn hard every day.
This is why we give ourselves pocket money.
Pocket money is the best thing we ever did with our budget. Why?
Because if we’re allowed to spend some money without feeling guilty about it, we’re less likely to go on a binge spending weekend.
Deprivation is not the key to happiness. Moderation is.
My boyfriend and I get pocket money every single week. This is our very own money that we can spend on anything we like, and no one can judge us for it, and no one can make us feel guilty for it.
Boyfriend loves to spend his pocket money on coffee and beer. Beverages in general. I love to spend mine on art supplies and stationery. They’re our vices, but they’re not destructive.
I highly recommend that you give yourself some mad money to spend on anything you like. It helps keep the spending demons at bay.
Now It’s Time To Set Up Your Budget
Just when you thought you were safe! No, I have more work for you. I’m kidding.
Remember when we figured out how much you earn, how much your fixed expenses are, how much debt you need to pay off, how much money you need to save, and how to save for your goals?
Guess what! You just made a budget! I’m so damn proud of you right now.
However, this doesn’t mean you get to be complacent! Nope. It means that right now, you’re going to block out space in your diary one month from now to review your budget. And then you’re going to keep doing that, every single month.
Putting Your Budget In Maintenance Mode
Don’t stress too much, it’s pretty simple. For the first couple of months you’ll find yourself making adjustments to your budget, but as you go on, you’ll find that it all settles down. After a few months, your budget review will take about two minutes, because you’ll already know what’s going on with your money.
Having a budget isn’t about being a cheapskate. It’s also not about being annoying and superior.
Having a budget is about taking control of your life so that you can have the things you want and need, without having to worry about it.
It’s about having the freedom that comes from knowing that you’re financially backed by the only person who won’t let you down. And it’s about knowing what’s important to you and going out and making that happen.
It’s all about you!
What is the current state of your budget? Are you afraid of budgeting?