OPINION: This year’s government budget caught my mind on personal and household budgets.
Budgets are a great planning tool that allows us to understand the state of our finances – our income, our expenses, and our must-haves and favorites.
When developing a budget, it’s ideal to start with your income and basic needs, and build from there. Then add the goodies to have alongside your other priorities, such as saving and investing.
In some cases, you may have money left over when you deduct most of your income; in other cases, you may have a deficit, which means you will have to find savings in your spending.
Either way, knowing your financial situation is empowering.
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However, budgeting for a living pay to pay isn’t ideal (remember, you should try to create an emergency fund), whereas not being able to pay your credit card every month means you live beyond your means for this month at least. , and if this continues for the long haul, it could lead you into a hole that you will have a hard time getting out of.
Budgets only work if you stick to them.
You can adjust your budget for increases in income or additional expenses as you go, but the basics of your budget should really stay true to what you’re trying to achieve.
Budgets are for everyone – not the rich or the poor, or the old or the young – they are a lifelong discipline, just like eating healthy, staying fit, and continuously learning.
There are many tools that can help you with your budget – banks, the Commission for Financial Capability and its excellent Sorted website, and many financial advisor websites.
While it has never been easier to spend money using electronic banking services through Debit Cards, Credit Cards and Afterpay, it has never been easier to use these same options. electronics to your advantage.
In the old days, long before the arrival of eftpos and ATMs, we would go to the bank to withdraw money and separate it into envelopes or boxes for our different areas of spending, and pay our bills by putting a check through. the post office. To imagine!
The good thing about this system was that we felt and saw every dollar we made and spent – literally – and it made us think twice about the wisdom of spending it. We were more aware of where our money was going, as opposed to how easy it was to click here and collect there.
Today, many of us use online-only bank accounts to segregate our spending on different accounts. We can have accounts for food, fixed costs, vacations, children’s education, insurance… the list goes on.
But as easy as it is now, we still have to be careful. We still have to take the time to figure out how much to transfer to these accounts, whether weekly, bi-monthly or monthly, and then stick to this plan.
We still need to budget, and maybe be even more diligent, because it’s easier to let that revenue slip away.
Some people bring their budgets to life with picture boards, where they display what they want to accomplish. It can be very inspiring and can keep you focused.
As I said earlier, budgets can be extremely stimulating, especially when you see your savings balances increasing. Now that many of us have banking apps, it can be rewarding and encouraging to see KiwiSaver savings and balances increasing each month.
Some people prefer something a little more complex, like spreadsheets. There is nothing better than a live spreadsheet to tell you exactly where you stand.
There are many ways to budget and stick to it. There is a popular rule in the United States right now called the 50-30-20 budget rule. Basically, it’s about taking your after-tax income and allocating your expenses 50% to your needs, 30% to your valuables, and 20% to your savings.
Of course, the hardest part is limiting your needs to just 50%, which can be a lot easier said than done. You can tweak it a bit, say 60-20-20, or whatever suits your situation. The key is to have a plan and stick to it.
After you’ve set your budget in a way that works for you, there are plenty of tips to help you stick to it. Here are just a few:
- Sleep on the big purchases – take your time if it’s not something you need.
- Never spend more than you have – that probably means being extra careful with credit cards and deferring an expense until next week.
- If you have a credit card, set a lower limit and pay more than the minimum amount.
- Donate every dollar you earn at a job, even if it’s in KiwiSaver.
- Freeze spending every now and then – spend only on necessities for a week and see what’s left. More savings or a special treat?
- Plan your meals, shop online (to reduce temptation) and stick to your list.
- Shop smart, shop.
- Promise yourself that when you budget, you’ll reward yourself.
And yes, I have a budget. Mine is not so much a budget by item, rather I have established amounts that must be paid into certain accounts to ensure that I reach my financial goals.
And yes, I’m a lot more disciplined when I’m responsible for every dollar, so having a financial advisor makes me hesitate when I see a good deal, a great sale, or that consumable is screaming at me to buy it.
Budgets are an ongoing discipline and will help you achieve your financial health, wealth, and well-being.
– Katrina Shanks is the Managing Director of Financial Advice NZ.