The dreaded “B” word - budgeting. Having a budget for a household seems so confining and draining bu it can actually be a tool of financial freedom once you have one. There is a bit of legwork setting one up; but it will reap rewards for you and your children as they develop good money habits. Here’s how to budget right - and stick to it.
Consolidate debts - even with bad credit
Death by a thousand cuts is the likely way a household budget quickly becomes out of whack. Credit card minimum payments keep the wolves at bay, but the debts climb higher. The idea is to reduce as much of your debts to zero. Bill Tsouvalas, Savvy Managing Director, says a pathway to greater financial freedom is to take advantage of a bad credit loan to consolidate small debts. “Even if you have bad credit, you can consolidate your debts and progress towards having more cash in hand each month and a better credit score,” he says. “While your loan interest rate may be higher than normal, it’s significantly better than dealing with twenty-plus percent interest of some credit cards. Better yet, every payment you make gets you closer to zero.”
Getting a baseline income vs expenses
Before you commit to a budget, you need to get a baseline. This is getting a level playing field first before you can keep score. That means determining how much income your household gets and where it all goes in expenses. That means getting at least two months’ worth of bank statements and start categorising where your money goes - rent/mortgage, utilities, food & groceries, education, kids’ needs, clothes, debt repayments, transport, and luxuries. If you see you are spending a lot of money on luxuries, it’s time to turn that tap off and redirect the spending elsewhere.
Tracking your budget using apps - and forecasting bills
If you’re already using internet banking, you can use them to your advantage. Many of them have expense forecasting - especially if your rent or mortgage are fixed monthly or fortnightly payments.
Setting up your bills via BPay can also notify your app when new bills are due and how much money you’ll have left over when all the bills are taken care of (as an estimate). There are also several free government budgeting apps that are a great place to start.
If you always find yourself short, try to have your direct debits go through on payday, so you know how much discretionary spending you have after all your essentials are taken care of. Ideally, you should be paying this month’s bills with last month’s income. What you do with the remainder is simple; save, or pay down debts.
Remember to have goals in mind.
Saving for a “rainy day” can only do so much. Make sure you have weekly, monthly, and yearly goals in mind, so you have something to strive for. “It makes a big difference when you make several small, noticeable changes each day or week,” Tsouvalas says. “Turn your savings into a home deposit, a holiday, investment, or a new car. Be sure to reward yourself for your hard work!”