6 budget habits you can start today

You don’t need to be “good with money” to build wealth. Budgeting isn’t about restriction. It’s about understanding where your money goes so you can choose where it should go next.

1. Track and review your spending

Budgeting can seem like an impossible task when you first start but remember that you do not have to be perfect from day one. Learning the basics is empowering and can put you on the path to long-term financial success. Before you can seriously save or invest, get a feel for where your money is going. Groceries, fuel, insurances, dining out, subscriptions, ride-sharing bills – you name it. An easy way to track it all is to download bank statements or use credit card apps that give you a full snapshot of your spending habits.

Money Smart have a helpful budget planner tool to try.

2. Make a realistic budget

Creating a budget can help you better manage money and identify potential spending cuts. Check your income (after tax) first and then list non-avoidable monthly expenses such as rent, mortgage payments, utilities, groceries, mobile phone and transport costs. Then factor in discretionary items such as entertainment; holidays; takeaway food and dining out; fitness activities; and family costs such as childcare, school and medical fees.

Setting realistic spending goals will keep you motivated and more likely to meet savings targets.

3. Deal with expensive debt first

With credit card interest rates often exceeding 20%, this form of debt is likely to be the most expensive burden you will carry. So, target it through common strategies such as the snowball method (you pay off the smallest balance first to gain momentum) or the avalanche method (you tackle the highest interest rate first to save more overall). Other common debts to quickly address should include personal loans, car loans and buy-now-pay-later services.

4. Consider the 50/30/20 rule

A popular budgeting framework is the 50/30/20 method. Think of your money going into three different buckets. Allocate 50% of income for essentials such as a mortgage, groceries and utilities; 30% for wants such as travel, dining out and streaming services; and 20% for savings that could go to an emergency fund, paying down loans, or any financial goals.

You can play with the percentages to suit your requirements but try not to undercut savings too much.

5. Try the pay-yourself-first method

Prioritising savings is crucial for smart budgeting. Instead of just saving what is left over (if anything) after expenses, it helps to treat savings like any other monthly ‘bill’. This is where the pay-yourself-first strategy can be a valuable automatic savings tool. Set up transfers to separate savings or investment accounts as soon as your income arrives. This stops impulse spending that can derail your short and long-term investment goals. Then use the remaining income to pay other expenses.

6. Review and revise regularly

Budgeting isn’t a set-and-forget exercise. Reviewing your budget monthly or regularly allows you to respond to changing income, rising costs or new priorities. Small adjustments will help you stick to your overarching plan.

Over time, consistent habits like budgeting can create more choice. More security. And more flexibility later in life.

Next steps

1. Assess your last three months of spending and scan where your money is going.
2. Try a free budgeting tool such as MoneySmart’s budget planner.
3. Set up a small automatic transfer to savings, even if it’s $20 a week.

 

This article is part of a series for She likes money, a Vanguard initiative to improve the financial and investment outcomes of females in Australia.