Creating a weekly budget might sound like a no brainer but it’s actually something that took me 25 years to learn how to do. It’s not something that we are taught in school and it’s not something that many of us pick up at home. These are some of the little hacks that I’ve picked up personally.
I hate the word budget and I hate having a budget. It sounds like you’re taking something away from yourself or your life. Life isn’t supposed to be hard. It isn’t supposed to be something that you’re forced to do. It isn’t supposed to be something that feels bad and constricted.
I prefer, instead of the word budget, an investment plan or a lifestyle plan. I prefer to be pulled forward as opposed to trying to push forward. That means having a goal that’s big enough to make me want to create a such a plan.
Take out a piece of paper, draw a line down the middle of that page, on one side write income or Incoming Money at the top. On the other side, write Expenses or Outgoing Money.
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On the incoming side, write down all of the income that you and your partner are receiving. Then break the expense’s column into two more columns. One is for fixed expenses and one is for variable.
Fixed expenses include all weekly, monthly or annual expenses where the price is set in stone and must be paid on a regular basis; for example phone, car, rent / home loan, investment properties etc.
Then there’s the variable expenses or the ‘lifestyle stuff’. For me, I need a gym membership. It’s probably not something that I would put in my fixed expenses column, but it is something that, from a lifestyle perspective, makes me feel great and makes me continue to charge on towards my goal. Other variable expenses include dinners, coffees and travel.
Hint: When listing your expenses remember the success of your budget or plan will depend on how realistic you are. Be sure to remember those annual expenses that creep up and divide by 52 to break them down into a manageable weekly amount.
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Once you’ve got a good idea of what’s coming in and what’s going out on a weekly and an annual basis you can create your plan.
The best way to begin your new budget is to focus on your expenses by first reducing your fixed expenses; and second is to make a decision to cap your variable expenses.
Reducing Fixed Expenses: It wasn’t until I set my own budget that I realised I was paying out a lot more money than I needed to. There was an extra $40 a month for my home internet, an extra $30 a month for my phone and I was able to spend $50 less per week on food by shopping at the local farmers market.
It’s crazy how much money you can save in your weekly expenses that are fixed if you actually start to look at them in isolation and look at ways to reduce them.
All of your expenses can be controlled if you’re prepared to ring up the electricity provider, phone and internet company and push them down on price or switch providers to lock in a better rate. Jump on the phone and question every item in your expense column.
All of those little things in your life can mean all the difference to your weekly budget. It can take you from not being able to save a cent, to being able to save 10% or even 20% of your income each week. Invested wisely, this extra income could make you financially independent in the long term.
As I mentioned earlier, the second part of your plan is about capping, or even eliminating some of those variable expenses that you don’t need.
Personally I’m all about lifestyle. I want to be travelling. I want to be spending time with my family. I want to be training. I love surfing so I want to be able to get a new surfboard every now and then. These are things that I’ve worked really hard for and that add value to my life. It’s important here to be honest about which of those things you really need and which of those things you don’t.
For instance, I might go and buy an investment property for myself and I’ll save really hard for a couple of years to achieve that goal. Then once I’ve achieved that goal, I might relax for a period of time, have a much better lifestyle and then put my head down and get focused again. With the help of my budget I am now conscious of the daily things that I do with my money and where that will get me longer term.
A really good example of this is looking at a compound growth calculator. If you put a $400,000 property purchase into the calculator that gets you a 4% return for the next 20 years versus a 6% return for the next 20 years there is almost $500,000 difference. By being strategic now, your financial future is dramatically different.
Once you’ve created the plan to reduce your fixed expenses and cap your variable expenses in your life, the fourth step is about creating a plan to increase your income. I don’t believe there’s anybody that can’t increase their income in Australia or change their situation.
If you currently work full time you have two options to increase your income; you can approach your boss and ask for a pay rise or even look at an incentive program to increase your target for a bonus income. If there is no growth in your current job your second option is to look for a higher paying job.
If you run your own business, then you’re in control of your own destiny and you can set a stronger sales target or you can even eliminate costs in the business to make it more profitable.
Something that I did when I was working for other people was to set up a little side income in addition to my salary. That could have been anything from buying and selling secondhand surfboards on eBay while I was at university or even starting this blog which has led to my business Pumped On Property. Doing any number of other little projects like that, or potentially picking up a second job can increase your annual income and savings dramatically.
The other way to create a plan for increasing your income, even if you’re not starting with much, is to begin investing. If you use this additional income / savings to invest you can then make that money work for you.
Ways to invest may include;
- Starting a business
If you are focused constantly on how you can grow that income, you can begin your plan towards financial independence. From there you can decide to do whatever you want with the rest of your life.
Set a goal that’s big enough to pull you forward. I was hopeless at creating a weekly budget and sticking to it until I had something meaningful enough to pull me through.
The first big meaningful thing for me was travelling. When I was 19 I worked full time between finishing school and then starting university. I set a goal of going to Europe with my mates. I saved that money, which was really difficult at that time, but the goal was strong enough to pull me forward. I knew every extra dollar I saved would be an extra dollar I could put towards the trip. I had an amazing time. Since then I’ve travelled every single year because it’s so important to me.
Then after I finished university I became interested in investing, so I started to look at what it would take for me to buy a property. I continued to save my money and over time bought more properties. That was another big goal, pulling me forward. As I began my family I decided I wanted a nicer car and the cycle continued.
It’s experiential for me. I love lifestyle and experiences that don’t cost much, getting out on the beach or into the bush. Everybody’s different. You’ve got to find a goal that’s big enough to pull you through your current position and into a position of long-term financial independence. Then find an investment that’s going to enable you to be in a better position one year, five years or even more from today.
The seventh and final part of your budget or plan is just committing to it and making it happen. 90% of people that set a fitness goal don’t achieve it. 90% of people that set a work-related goal don’t go and achieve it. 90% of people that set a weekly budget don’t go and make it happen long term. It’s really those long-term habits that change your stars and your future. Make it happen.
Make sure your goals are strong. Be clear on what’s coming into your life and what’s flowing out of your life financially. Be conscious of where you’re putting each and every dollar and try and work towards investing 5 or 10%, or over time 20, 30, 40, 50% of your income. Wherever you’re starting from, you can always put yourself in a better position. It starts with the commitment. It starts with sitting down and reviewing where you are and deciding what you’re going to do with that surplus money once you get it.
To book a complimentary strategy session with the team at Pumped on Property click here. We would love to spend some time learning about where you are right now and where you’re looking to go in the future.