Understanding how much you spend on a daily basis is key to making positive changes to your finances. Setting (and sticking to!) a budget is essential when saving money as it will make you aware of where your money is going, find your money leaks, and help you change your habits so that you can achieve your financial goals. But how to start? When setting a budget, here are a few tips when dividing your income:
1. Pay yourself first
One of the most important things you can do for your financial well-being is to develop a habit of putting money into a savings account. It’s not so much how much money you put aside, as long as you do it on a regular basis. Savings accounts also allow you to earn interest (a percentage of money) off of your money so it will slowly grow, especially if you keep adding to it. Those in debt are also encouraged to put money into savings, as well as regularly paying off their debt.
After the tax department has taken their share, move at least 10% of your monthly earnings into savings before you can do other things with it. Many workplaces make it easy to move a portion of your income directly into your savings account. Ideally, you should put another 10% into your super fund (on top of your employer’s contributions). No matter how far off retirement seems right now, it is wise to start preparing for it now, especially since the cost of living has been known to double every 15 years. Total: 15-20%
2. Set aside money for your essential expenses
Only allow 60% of your salary for essential expenses like rent, bills and groceries. Consider getting a checking account for these day-to-day payments and keeping your saving account for long-term savings (emergencies, big purchases and holidays.) Look out for tips on how you can cut back on your daily spendings and reduce bills with cheap deals.
Total: 60%
3. Extras
The rest of your income goes to luxuries like entertainment and holidays. If you are overspending, this is the area where you will need to make cuts. By tracking your spending you can find where those ‘money leaks’ are: is it the daily bus fare or buying your lunch during the week? How can you cut back and save money in these areas? Finding these leaks in your budget makes you more aware of your spending and allows you to fill the money leaks without too much disruption. Total: 20-25%
Do this in heaps!
Heaps! categorises most of your transactions for you so you can see exactly how much of your income is being spent on various categories. You can also re-categorize your transactions to suit your lifestyle. Heaps! will then look at both your regular payments and daily spending to work out your total spending for that week, month or fortnight. Once it has calculated your surplus, or debt if that is the case, you can work with heaps! to create a budget that will suit your lifestyle and help you save money.
By Alicia
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