Year end, or the new financial year (starting 1 April in New Zealand), is the perfect time to consider your budget. Whether you’re new to budgeting, or are looking at ways to evolve or improve on your current budget, this article has some handy tips, regardless of whether you’re a beginner or a seasoned professional. Taking control of your finances can be hugely beneficial for you personally, or a way to get on the same financial page for couples and families. The sooner you start, the sooner you’ll start to reap the rewards.
As summer draws to a close, we’ve often had our summer holiday break, and hopefully paid off the credit card after an indulgent festive period, and the expense that Christmas travel and gifting can often bring. The end of the financial year is yet another reminder that it is time to reset, plan and focus on the year ahead.
If you’re tired of living payday to payday, or keen to rid yourself of that “can I pay my rent this month?” feeling, you need a budget. You might want to track your expenditure in a good old fashioned spreadsheet, or perhaps you’d rather a handy app to do the hard work for you? To keep things super simple, an online budgeting tool like the Sorted calculator can help you to visualise where your money is going. Check out the budgeting app options your bank or KiwiSaver Provider offer, or check out a budgeting product like PocketSmith.
Your budget will include all your sources of income, and detail your expenditure. A good way to start is to break it into your pay period cycles – this will be a monthly budget for some, and weekly for others. The difference between the income and expenditure is the money you save each pay period. If you’re keen to increase your savings, you’ll need to take a closer look at your expenses.
Your expenses tend to fall into three categories:
You have little influence over your fixed expenses, but you will have some level of control over your regular expenses. Take your weekly grocery bill – by swapping out brands and shopping for cheaper in season produce, picking up items on sale or buying in bulk. Same goes for negotiating a better deal on your utility bills such as a power and phone/data. This should be an annual task to shop around for a better deal. The variable expenses should be a no-brainer – set yourself an amount for “treats” and you decide how you spend it each pay period.
You’ll be surprised when you start to break down your expenditure, just how much you spend in certain categories. That takeaway coffee you buy every morning can add up over the month – can you bring one from home or use the work machine instead? Think about taking your own lunch to work and cooking more from scratch. Perhaps your monthly friends catch up can be a potluck dinner at someone’s house rather than always at a swanky restaurant? Can you carpool with others or get public transport to work instead of always driving solo and paying one hundred per cent of the petrol and parking?
Create ‘envelopes’ or separate bank accounts for specific expenses (say, rent or mortgage payments, groceries, utilities, disposable income) and move money into these accounts every payday. You’ll reduce overspending and understand clearly each month, where your money is going.
The concept that every month, you’ll have zero money left over. This is because you know exactly what your expenses are, and how much you’re adding to savings or investment accounts. This way of budgeting can be difficult to manage if you have multiple irregular expenses, but is a good option if you’re guilty of ‘mindless’ spending because you have money left in your account.
This way of budgeting encourages you to tweak your fixed expenditure to be 50% of your income, enabling you to spend 30% of your income freely (say entertainment, clothing or homewares) but ensures you use 20% of your income to pay down debt, or add to your savings or investment account if you’re debt free. This works for people earning larger salaries who want to pay down debt or save, but still have an enjoyable lifestyle.
An Australian personal finance author, the Barefoot Investor offers a slightly more detailed budget split than the 50/30/20 method. Use a Daily Account to pay for the majority of your expenses, and transfer 60% of your income here. Open a Splurge Account and pop 10% of your income here for no questions asked spending. A Smile Account is suggested for long-term rewards such as a holiday, car upgrade or room renovation (10% of salary here). That leaves you 20% of your income in a Fire Extinguisher account to “extinguish” the fires in your life – long term credit card debt, emergency dental treatment, replacement whiteware purchase. Think of this an emergency fund.
There are clearly many ways to manage your budgeting – the right approach will depend on your approach to your finances and the income level, debt level and the expenses you have. It will also depend on your lifestage: budgeting tips for couples or singles can be very different to the needs of a family on a single income, needing to stretch their income further.
Importantly, you should always try to reduce your debt levels, and have a small amount saved each pay period to increase your savings, or cover you for unexpected or large expenses that do come up from time to time.
No matter how carefully you budget, or how diligently you save, unexpected expenses can come up. Thinking about your options to secure a short term loan if you need it is a sensible scenario to prepare for – credit card, personal loan, payday lenders are common solutions to quick cash when you need it.
We believe personal loans can be a sensible solution to many unexpected expense situations. Typically offering better interest rates than a credit card or payday lender, a personal loan can work out cheaper in the long term. With a finance provider such as Nectar, you can access anywhere between $2,000 and $30,000 and get the funds into your bank account within a day. If you don’t end up using the entire loan, you can pay it back, with no early repayment fees.
We’d love to help with your personal loan requirements – see how much you could borrow and our current rates with our handy online calculator. You can get started with Nectar and get a personalised loan quote online which will include your interest rate, maximum borrowing amount and repayment options. Borrow better, faster today!*
*Nectar’s lending criteria and responsible lending checks apply.
