How to budget so you can save more
1 September 2021
Section Heading
Constantly finding yourself short of cash? Struggling to save money? It might be time to put a thorough budget together.
A budget can help you achieve crystal clarity on how much is entering and going out of your pockets and how much you’re saving. It will help you take control of your finances so you can be more confident about your financial future.
If you’re keen on budgeting to save more and achieve your financial goals, read on for our top tips.
Work out what you’re spending first
The very first step of budgeting to save more is to work out exactly how much you’re spending. You need to account for every last cent that is leaving your pockets.
Some of your expenditures may include —
- Coffee you buy on the way to work
- Cash tips you leave for waiters at restaurants
- Your gym membership
- Utility bills such as electricity and internet
- Public transport fares
- Petrol costs
- On-demand video subscriptions
- Medical costs
- Health insurance
- Outstanding debts
— but it’s likely there’ll be much more so take your time thinking about it.
Being thorough is a necessity. Be sure to account for absolutely all of your spending, both regular and once-off spends, over at least a few months to see if there’s a pattern. Ideally you’ll gather up bank statements, receipts, paystubs, loan statements or even write down all that you’re spending, as you spend it, over years.
The more data you have the better and the more diligent you are about recording your spending, the more clarity you’ll eventually have.
The key to budgeting is being honest with yourself, so when you do this, go slowly but don’t shy away from the truth. As the old saying goes, you can’t manage what you don’t measure.
If you find yourself feeling overwhelmed or unwilling to dig deeper, just remember the long term benefit of this exercise is that you could have more money in the future.
Work out what you’re earning
Now that you’ve worked out what you’re spending, you need to work out exactly what you’re earning.
If you’re an employee working for a business, your earnings may come in the form of a regular paycheck with taxes already deducted. If this is the case, you can use these numbers in your budget.
But if you run a business or work as a sole trader, don’t forget to deduct the tax and/or the super you’ll be paying into your super account before jotting it down.
Lastly, don’t forget to dig into and record any other forms of income you may have. Other forms of income can include any government assistance you’re receiving, dividends from shares, rental from investment properties or even earnings from side hustles.
If your income happens to fluctuate from week to week, month to month or even quarterly, use the numbers from a weaker time period to create a margin of safety in your budget.
Work out the difference between what you’re earning and spending
This is where the process might get a bit confronting but if you’re going to budget, save more and set your future up, this is a must-do.
If you’ve found that you’re earning more than what you’re spending, this means you’ve got extra cash on hand. Extra cash means you have options, which is great! You can use the extra money to whittle down debt, eliminate debt, build a house deposit or even contribute it to your super fund.
To make the most of your savings, you might want to give a 50-30-20 budget a go. This 50-30-20 budget is a simple method where —
- 50% of your after-tax income is spent on necessities and obligations (your musts)
- 30% is spent on nice-to-haves (your wants)
- And the other 20% is spent on saving and debt repayment.
If you happen to be spending more than what you’re earning, there’s no time like right now to make some serious changes and...
Cut your spending back!
This is where all the effort you put into working out what your expenditures are going to come into play.
It’s helpful to start thinking in terms of what is a ‘must’ and what is a ‘nice-to-have.’ Take a good look at all your expenditures and determine what isn’t necessary to your life and what you can cut.
Here are a few ideas —
- Is buying a coffee every morning on the way to the office a must? Or can you drink your coffee at home before you leave for work?
- If you have on-demand video subscriptions to Disney+, Netflix, Prime Video, Apple TV+ and more, are these a must or a want? Can you cancel a few or all of these?
- If you eat out often, can you cut this back?
- If you have a gym membership, could it be cheaper to buy a weight set as opposed to paying a high fortnightly fee?
If you can successfully begin cutting your nice-to-haves to focus on your musts, it’s highly likely you’ll be able to set more cash aside for your future, sooner than later.
Got your spending under control? Consider using super to set up your post-work life
If your budget has helped you take care of your ‘musts’, ‘nice-to-haves’ and save more than ever, you may be wondering what to do with your excess cash.
A fantastic option is to put some of your money into your super account as an after-tax contribution. An alternative is to enter into a salary sacrifice agreement with your employer. This is where they make super contributions on your behalf from your before-tax salary.
Either way, the extra super contributions may help you compound higher levels of interest over a long period of time, putting you in a better position to enjoy your post-work life.
Need help budgeting and setting financial goals?
It’s no shame if you do. Everybody needs a helping hand at some point. If you’re struggling to manage your finances and keep your budget under control, you may want to consider speaking to a financial adviser.
A financial adviser can help you determine where you are now financially, help you set goals and help you achieve them.
If you want to speak to a financial adviser, just call 1300 162 348.
If you’re considering before or after-tax contributions but not sure what to do, give our Member Services team a call on 1300 162 348. They’d be happy to help.
