My money plan.
Some people call it budgeting but that conjures up images of ‘cutting back’ or ‘going without’. Rather, let’s think about how we are going to use our money wisely to get the things we want in life and put together a plan for our money.
This 6 minute video covers how to put together a money plan that can help you take responsibility for managing your money and achieving your life goals.
Download the Budget Planner.
We all know that money is a finite resource … there just never seems to be enough to go around. It comes in but doesn’t stay for long before it goes out again. It goes out to pay for a whole host of things that we need every day … somewhere to live, something to eat, getting around, staying healthy and enjoying life. Money is essential to live, which is why it makes sense to understand how and where it’s being spent.
By taking the time to sort out your personal finances and PLANNING for how you want to spend your money, you are much better placed to make confident decisions about your money and have the financial future that you want. So the first part of planning is to think about your dreams and goals. What is it you want to achieve out of life?
That might be a gap year overseas before going to university, the capacity to help your kids buy their first car, owning your own home, or perhaps early retirement. Whatever it is, it’s not going to happen unless you want it and you make it happen. This brings me to my next point … taking responsibility.
You are the only one who can make decisions about what you want out of life and you are the one who decides how you spend your money. Only you can be responsible for you and your money. One of the best things you can do to help achieve your dreams and goals and have the financial future that you want is to develop good money habits.
I always think that if you can make something a habit, it becomes much easier to do because you do it without even thinking about it. We’ll get to some of those good money habits shortly. One way that we can get a better understanding of how we’re spending our money is to keep a money diary. Religiously record every single cent you spend for say one month and this will then give you a very clear picture of where your money goes.
You can then group these expenses into categories like housing, transport, food, and so on and add up the amounts to see how much you spend each week /fortnight /month. This information will form the basis of your money plan or budget. Looking at how much is spent and where … you can then make the decision whether this is how you want to spend your money or whether there is a better way.
If you continue spending in this way are you going to have the life you want and achieve those dreams and goals? Often when people think about budgeting they think about restrictions or having to cut back, but the reality is that a budget is simply a plan for your money that helps you to achieve your goals and have the financial future that you want … enjoying the good things in life.
So, how do you build a budget that is going to work for you? Start with the information you collected in your money diary and plug it into a budget planner like this one … that you can download from the Davidson Institute website. Start with your Cash-in’. This may be your wages, a social security payment or income from running a business. Note whether you are going to work on a weekly, fortnightly or monthly basis.
Many people find it easiest to work on a monthly basis as many expenses are charged monthly … such as your electricity or internet provider. Then record all of the ‘Cash-out’ amounts starting with the money you want to save. We think it’s important to pay yourself first; set aside your savings for your future spending. Then record the money for your commitments to other people like loan repayments, phone plans and so on.
Then all the money you need to live. As we saw earlier this can be divided up into categories such as food, transport, housing and so on. Don’t forget expenses that you don’t pay very often like an annual insurance premium … allocate a monthly amount to save for these expenses so that when you receive the bill the money is already waiting and it doesn’t disrupt the rest of your budget for that month.
Then record the money you choose to spend to maintain a particular lifestyle. This might include sports you play, club memberships, entertainment like a night out at the movies, or simply your spending money. Add up all these amounts and subtract that from your money in and you’ll end up with a surplus or a deficit. The idea, of course, is to end up with money left over that you can then decide where you’re willing to spend more, or you can increase your savings.
If you end up short of money, it’s time to re-evaluate your spending or look for other ways to increase your income. Remember, the great thing about this is that it is a plan - a picture if you like - and if you don’t like the picture you’re painting, you can change it.
By taking the time to look at your spending and develop your budget, you can make the decision as to whether this is how you want to spend your money or whether there is a better way that will help you to have the financial future you want. Take the first step towards building your own money plan by starting your money diary. And continue your financial learning journey with the next module from our Financial Fitness course.