How can I create a personal budget plan?

Creating a personal budget can sound restrictive.

But a useful budget isn't necessarily about cutting out everything you enjoy. It's about understanding where your money goes and deciding whether that spending reflects what you actually want to achieve.

For many people, the hardest part is simply knowing where to start.

Aspire2Wealth adviser Nathan Torre recommends starting with something you already have: your bank statements.

How can I create a personal budget plan?

Start by looking at your income and expenses over the past few months.

Your budget should give you a realistic picture of:

• how much money comes in

• your regular household expenses

• debt repayments

• discretionary spending

• savings and investments

• irregular expenses that occur throughout the year.

  
  

The Australian Government's MoneySmart guidance on how to do a budget recommends looking at transactions across a few months so you capture expenses that don't occur every week.

MoneySmart also provides a budget planner that can help you bring those figures together.

The important thing is to use real numbers rather than estimating what you think you spend.

Where is my money actually going?

Once you have your transactions in front of you, start looking for patterns.

Some expenses will be essential. Your mortgage or rent, groceries, utilities, transport and insurance aren't simply going to disappear.

But other expenses can gradually become part of your monthly spending without you noticing.

Nathan describes these as the "set and forget" expenses.

Streaming services, gym memberships, cloud storage, apps, credit card fees and other subscriptions can each look relatively insignificant.

Together, they can add up.

Nathan recently worked with a client who had accumulated seven different streaming services, costing between approximately $20 and $40 each per month.

By reviewing what they actually used and reducing the number of subscriptions, they were able to save around $100 to $150 each month.

That's potentially more than $1,000 a year.

A simple question can help when reviewing these expenses:

If I wasn't already paying for this, would I sign up for it today?

If the answer is no, consider whether you still need it.

What should I include in a personal budget?

A budget needs to reflect your real life.

That means looking beyond the bills that arrive every month.

Annual insurance premiums, vehicle registration, school costs, holidays, Christmas spending, home maintenance and unexpected repairs can all put pressure on your finances if you haven't allowed for them.

One approach is to estimate these annual or irregular expenses and put aside an amount for them throughout the year.

Your budget then becomes less about surviving until the next payday and more about anticipating what's ahead.

How much should I be saving each month?

There isn't one percentage that will be appropriate for every household.

How much you can save will depend on factors such as your income, mortgage or rent, family circumstances, existing debts and financial goals.

Instead of starting with an arbitrary percentage, look at what is genuinely available after your necessary expenses.

Then give that money a purpose.

That could mean building an emergency fund, reducing debt, adding money to an offset account, investing or saving towards another goal.

The important part is that saving becomes intentional rather than simply being whatever happens to remain in your account at the end of the month.

What should I do with money I save from my budget?

Finding savings is only the first part of the process, decide what you want that money to achieve.

If you cancel $100 worth of subscriptions each month but simply spend the additional $100 elsewhere, you haven't necessarily improved your financial position.

Depending on your circumstances, that money could instead go towards paying down debt or another longer-term goal.

For homeowners, one option may be putting additional money towards the mortgage or into an offset account.

Our article on how to pay off your mortgage faster explains some of the strategies homeowners can consider.

How often should I review my budget?

Your budget should change as your life changes.

A pay rise might give you additional capacity to save. A higher mortgage repayment can have the opposite effect.

Starting a family, changing jobs, buying a property or approaching retirement can change both your expenses and your priorities.

I regularly see this when working with people who have recently had their first child. Their everyday expenses change, but so can their need to think about insurance, income protection and longer-term financial security.

Rather than treating your budget as something you create once, consider reviewing it when something significant changes in your life or financial circumstances.

Can a financial adviser help with budgeting?

Budgeting can be done independently, particularly when your finances are relatively straightforward.

Where financial advice can become useful is connecting your everyday cash flow with your bigger financial decisions.

For example, should additional money be going towards the mortgage, superannuation, investments or another goal?

The answer depends on your circumstances.

A budget can show you what money you have available. Financial planning can help you consider how that money fits into your broader goals.

If you would like to better understand your cash flow and how it connects with your longer-term financial plans, you can speak with the Aspire2Wealth team in Perth.

Book a consultation

Sources

• Australian Government MoneySmart: How to do a budget

• Australian Government MoneySmart: Budget planner

Aspire2 Wealth Advisers Pty Ltd ABN 42 125 897 903 is an authorised representative and credit representative of Charter Financial Planning Limited ABN 35 002 976 294, AFSL and Australian Credit Licence No. 234665. This website contains information that is general in nature. It does not take into account the objectives, financial situation, or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.