Wealthy people manage their money

Talk to wealthy people and you will find most have one thing in common – they know how to manage their money. And that means having a budget. Boring right? It might sound tedious, but the reality is you won’t get ahead without spending less than you earn.

Here’s our guide to budgeting so you can take charge and change your financial future.

Take stock

You won’t know where you can save if you don’t know what you’re spending. Wile it can be confronting, the first step to better budgeting is to find out where all your money goes.

Start by reviewing your past three months’ income and expenses. Categorise your costs into fixed essentials (mortgage, rent, insurances, phone), variable expenses (groceries, petrol, haircuts), unplanned essentials (new brakes, dental surgery) and nice-to-haves (Netflix, new clothes, holidays).

You can use a traditional spreadsheet using excel, or a free budgeting app, such as Track My Spend, designed by ASIC.

Don’t fret if you don’t have enough income to cover your expenses. Better to discover this now than to keep heading in the wrong direction. If you’re spending more than you earn, or not saving enough, it’s time to make some changes.

Adjust spending

Time to decide where to cut back, keeping in mind even small changes can make a big difference. That take away coffee before work tallies to about $850 per year. Starting with the nice-to-haves, decide what you can go without. Whether it’s eating out less, shying away from shoe sales or cancelling your wine subscription,  sacrifices must be made! Your essentials also offer big savings opportunities. Budget less for groceries, shop around for a cheaper phone plan and ask Milestone Lending about a loan review. There are plenty of costs you can adjust so don’t put it off.

Allocate funds

Once you know your essential costs, budget for those first. There’s no point splurging on a night out if you don’t have enough money to pay your electricity bill. If tempted to spend before you save, open separate savings accounts where you can allocate funds for bills and savings.

Add up the annual cost of your bills, such as insurance, electricity and rates and divide the total by 12. Set up a monthly funds transfer for that amount so when bills are due, you have money on hand to pay them. You can then work out how much you need for weekly expenses such as petrol and groceries, and even that daily coffee.

Now you know your essentials budget, set aside some savings if you’re not sure how much to put away, start small and build to bigger amounts as you lear to live within your budget. A good savings goals is 20 per cent of your take-home pay. Once you’ve allocated funds for bills, weekly living and saings, the rest is yours to spend as you please. Just remember there’s a difference between desire and need, so try and save as much as you can. Remember, this is the bucket that rewards you down the track.

Sell stuff you don’t need

By now you must have heard about Marie Kondo. She’s a delightful Japanese lady who is super organised and does not have ‘stuff’. She strongly encourages people to only keep what they really need. It’s hard, particularly if you have kids, to get rid of stuff, but you just don’t need it. Of course, donating things to worthy causes is important. But if you have things that are worth money, don’t just give them away. Sell them! Free websites like facebook marketplace and gumtree are great ways to sell your unwanted stuff. It’s money in your pocket and its good for the environment too!

Stay on track

Everyone thinks about and manages money differently, so it’s important to find what works for you. The main thing is that you stay on track. It might take several months to notice a difference, but if you’re spending less than you earn, you’re heading in the right direction. Remember, budgeting needs to be part of your lifestyle not instead of it, so find ways to treat yourself from time to time without undoing your hard work.