Now its time to make budgeting easy! It shouldn’t be about pouring over spreadsheets. This step means your budget will look after itself.
Sorting your accounts
Automating your life!
The next step – we are on the home stretch now gang.
This is my favourite part, automation, meaning in the future you don’t have to do all that much at all.
In the last 2 parts we worked out what your percentages are, and where you need to pull yourself in line.
Now we are putting in place the tools to keep you on track to reach your goals and spending the right amounts.
Now we need you to set up 3 accounts
For the expenses account you want a no frills, cheap (or even better, no fee account), that lets you put as much money in and out as you want. This is a standard bank account. This is the account I normally get clients to deposit their pays in to.
As you have done your calculations in part 1 and 2, we know 50% of your income will cover the bills (or adjust it to match your figures).
With the 30% for spending and 20% for savings, set up automatic transfers for this amount into separate accounts to come out on the same day as you get paid.
To take this one step further, this is a trick I learnt off my mum when I first moved out of home and have done religiously ever since. Earlier when we got the annual amount you pay for bills, we did this for 2 reasons, to make sure your budget is accurate, and to know how much to pay the provider every pay… so if you get paid fortnightly, divide the annual amount by 26 and set up regular Bpay or transfer payments for each of these expenses to the appropriate company. This means you never receive a nasty bill when you don’t have the funds, and also means you can take advantage of the pay on time discounts.
Do this with all of the bills you can:
And any others you may have. Some bills you might not be able to do this to, like car rego and insurance, but that’s ok, leave that money to build up in your expenses account so it’s there when the bill comes in for you to pay.
2. Spending: 30%
This is the account you’ll have a card in your wallet for, You might have a card for your expenses account, but it shouldn’t need to be used often.
Your 30% in your spending account covers fuel, frivolous spending, and food. Once this money runs out there is no more until you get paid again. This is where you need to be strong willed, don’t transfer out of your other accounts to top up your spending, EVER!
Pay the important things first, like fuel, so you can get to work and food so your family and you don’t starve. But know, if you buy that gorgeous $330 Cue dress (my personal weak point), you might be eating 2 minute noodles that week because it might cut into your food budget.
I believe it’s important to have money for you, that’s why I think it’s important to allocate money that you can spend on whatever you want and not feel bad about it. I believe this is why most standard budgets fail, because people feel deprived and binge – just like with a strict diet. This makes it sustainable.
3. Buffer/savings: 20%
This account is the single most important bit of your budget, and in the end will change you from living week to week, to reaching that glory of being financially free.
Your first goal is to build up one months worth of a safety net, you will know what this amount is by our exercises earlier when we calculated the figure to run YOU, or $2,000, whichever is more. This is your Buffer account, the account that will save you in emergencies, give you the money to replace the broken heater or faulty car battery, and stop you from using that dreaded credit card.
This should be done in a high interest saving account, it is important you get an account that will make you money, especially in our current low interest rate environment. Make sure your savings account is earning a good return, currently as at May 2016 ours is earning 2.3% with NO fees, if you are earning less than that or paying fees, let us know because we can set you up a savings account free of charge earning a minimum of this (at 14/05/2016) with no fees, with full access, and no crazy rules (like you have to deposit a certain amount and aren’t allowed withdrawals to be eligible). Scrap that! Call us on 02 6021 0577 or email email@example.com with the subject- “Set me up an awesome savings account” and we can set one up for you, no stress and no hassle, free of charge. -We get a few perks being Financial Planners, and this is one we are happy to pass on to you.
Now lets get stuck in to the fun stuff!!! Investing