Does managing your money feel a bit chaotic?
Maybe you're finding it hard to make ends meet.
Hi! I'm Emily Stewart
and I'm going to show you
three ways to do a budget,
which will hopefully help you
get back in control.
Now a budget is actually most important
if you're on a lower income,
because every dollar needs to count.
If you're on a higher income,
you can often get away with
a few more spending mistakes,
because you've got a buffer there.
Just remember, everyone's got different habits
and time to do this
and preferences with technology.
Budgeting only works if you actually do it,
so you've got to choose the method
that works best for you.
But before you get started,
it can be really useful to spend
a couple of weeks doing a spending diary.
That basically just means making
a list of everything you spend.
Make sure you list all the big expenses
like your rent or your mortgage repayments,
but also all the little things like coffee.
Now this can give you a really good overview
of where your money's going
and maybe some areas
where you can cut back on expenses.
Now, our first method of budgeting
is the cash envelope system.
This system's perfect
if you're prone to overspending
and people have been using it since the 19th century.
These days, it's best used for our daily expenses,
because things like housing and bills
tend to be paid electronically.
So you start by dividing your expenses up
into as many categories as you'd like.
I've chosen five.
Let's just say groceries, fuel, eating out,
maybe even going to the hairdresser or kids' sport.
Every pay day,
you take out your wages in cash from the ATM
and you divide it up between the envelopes.
Say you get the average Australian weekly wage,
which after tax is about $960.
After your big electronic expenses,
you might put away
$160 for groceries, $50 for fuel,
$100 for eating out, $20 for the hairdresser
and $30 for kids' sport.
So when you go to the supermarket,
you're going to take the envelope marked "groceries",
but you can only spend what's inside this envelope.
Once the cash is gone, it's gone -
you can't buy anything else.
The upside to this method
is that it's pretty simple
and it'll physically stop you in your tracks
when temptation strikes.
The downsides are cash isn't traceable -
so if it gets lost or stolen,
you can't get it back -
and you're not earning any interest on your money,
so maybe it's not working as hard for you
as it could be.
The second budgeting method
is the balanced money formula.
This one was popularised by Elizabeth Warren.
She's a US politician.
Before that, she was a leading academic
in consumer law.
The idea is to take your income
and spend 50 per cent on your needs,
20 per cent on savings
and 30 per cent on wants.
So what does that mean?
Well, needs are things that you can’t live without –
so your housing or your healthcare.
Savings could be super or debt repayments.
And wants are the fun things.
So, things that you could survive without,
if you had to.
So maybe holidays and entertainment.
In Australia, you might have heard of a similar method
created by The Barefoot Investor, Scott Pape.
He recommends a different breakdown
that includes an emergency savings fund
and his followers swear by it.
To make it even easier to stick to,
some people go ahead and automate it.
That just means creating three or four bank accounts
and automatically transferring your money into each.
If you do this, try to choose
no or low fee accounts.
The upside to this method is that
it's a big-picture budget
and you've only got three or four things to think about.
The downsides, though,
are that you can still overspend.
You might borrow from your needs
to satisfy your wants.
And having multiple accounts means
you might not be offsetting your debt.
The last method is the traditional budget.
I use ASIC’s MoneySmart budget.
It lists all the necessary categories for you
and you don’t have to worry about
annualising expenses.
Choose the time period that suits you.
It might be fortnightly if you get paid that way.
So gather up all your paperwork –
your credit card bills, your receipts -
and start by typing in your take-home income from work
and any other income from child support
or social benefits.
Then start listing all your expenses -
your car insurance,
the cost of school books, your clothing.
Finally, the budget will tell you
if you spend more than you earn,
or if you have a bit left over.
Now, don't make it so tight
that you can't stick to it -
it's got to be reasonable.
The upsides to this method: it’s detailed.
You get a line-by-line picture of
what your spending habits are.
The downsides: it's a bit time-consuming
to create it and to stick to it.
Now, if you have found yourself in debt,
you can get some free and independent advice
from a financial counsellor.
Just search "financial counselling Australia".
And just remember, this is general advice.
If you need individual advice,
please seek professional help.
Good luck with your budgeting
and I'll see you next time.