Most of us will have done a budget to work out where our money goes and how much we can save each month.
You first check how much you earn after tax, and then minus monthly expenses such as your phone bill, rent and gym membership. What’s left is a mix of spending money and savings, right?
Well, no, not really. This method is flawed. Using the above budget method, you’re in a bit of trouble when yearly expenses (hello, car rego) or unexpected costs (your best friend’s 30th) pop up, and the result is trying to catch up the following month, and always chasing your tail.
“I believe in having a yearly calendar that shows your cash flow requirements over the next 12 month period,” Canna Campbell, financial coach and creator of SugarMamma TV told The Huffington Post Australia. Campbell runs a successful YouTube channel, educating viewers on financial freedom and independence.
“It’s wise to always track 12 months head, because no two months are the same. For example, your car insurance might come through, a strata bill, or your rego or compulsory third party. We also have events like Christmas time or a close friend’s birthday — so the way I look at it is, you have your consistent weekly, fortnightly or monthly bills, such as mobile bill, gym membership etc, but beyond that is a volatile line.”
Working yearly and factoring in the fun things, not just the bills, will actually give you more clarity around the true state of your finances. Though, don’t just do it when making your January resolutions — your budget should be revised every few months.
“If you can forecast what your additional financial needs are going to be you don’t get lulled into a false sense of security when you have a month when you don’t have many expenses. This way you don’t go and blow all that money, because you’ve forecasted that you have, for example, Christmas coming up, or a holiday in a few months time,” Campbell said.
In addition to checking in on your budget every few months it’s also really important to do it again if you get a pay rise, or come into some extra money.
“Re-evaluating and adjusting your budget is a constant thing, and that’s because our lifestyle constantly changes. I’m a big believer in people feeling like they never earn enough, and that’s because often our lifestyle goes up with our pay rise,” Campbell said.
“Unless we consciously take control of that, we are never going to get ahead and we will always feel like we’re hanging out for the next bonus or next commission cheque. What tends to happen is that [when people earn more money] they either buy the same items, but more of them, or the same items at a higher price.”
It’s not about being boring and stashing all that new money away, but about being reasonable and conscious about what you do with it.
“If you’re aware of your budget and are conscious with your spending, you might choose to divvy up your pay rise so that part of it can be enjoyed as spending money, and the other half will go towards your superannuation, or paying off your HECS debt sooner, or into savings,” Campbell said.