How to get the benefit of a budget without the boring budget

A good financial plan always starts with a good budget.

A budget means that instead of letting your money decide each month where it goes itself, you give it a job and put it to use.

But for most people, the idea of sitting down and going through each of their bank statements to understand everything they spent each month, is the equivalent of going to the dentist for a root canal.

So how do you get most of the benefits of a budget without actually having to budget?

In this blog, I’ll address some low effort ways to get the benefit of a budget without all the boring budgeting.

Tip 1: Let’s make the budget realistic

The biggest trap I see people fall into when coming up with a budget is they start from a place of aspiration.

They come up with a budget which means they basically cut out everything they enjoy in life to save huge amounts of money.

These types of budgets simply don’t work and you’re better off starting with a budget which better reflects your current spending you can stick to, then an aspirational one you can’t.

As a general rule, I suggest starting by just understanding what you are currently spending. In a lot of instances for higher income earners, you really don’t need to cut that much to build in a savings rate.

Tip 2: Focus on the discretionary expenses you love spending money on

Once you’ve got an idea of how much you are spending (and confirmed that it’s less than you earn), you really don’t need to be tracking every expense you ever do.

Boring expenses you’re spending regardless like car registration, home insurance and childcare fees aren’t going to change so keeping track of them in a spreadsheet is not overly helpful (unless you’re super keen on it).

Generally I suggest taking the few areas you love spending money on that are discretionary and focussing on those.

Good examples can be eating out, shopping, personal care expenses and holidays.

Tip 3: Utilise buckets for your money

The Barefoot Investor brought the idea of bucketing your money to the Australian public but the system has been around for a very long time.

For many older Australians, they will remember getting paid in cash and putting different amounts in different envelopes for their expenses in the month.

In a digital age, this is a little more challenging but you can have different bank accounts for different purposes.

You may wish to set up a holiday account and a personal fun spending account. You may also want to set up a clothes account or bills account.

The goal with separating out your money into accounts is instead of having to look at your budget every time you make a purchasing decision, you can simply check whether there is money in the account and spend it.

The value of this system is it’s forward looking (where you are seeing if you have money to spend) and not backwards looking like budgeting (where you are seeing the damage done last month).

Tip 4: Focus on your savings goal

Once you have a general idea of how much you spend and you’ve got a couple of automated bank accounts for your buckets, things should be relatively straightforward.

The one thing you now need to keep an eye on is your savings account. Is it going up? Going down? Or staying the same?

Remember your budget needs to reflect ALL of your expenses so think about big costs coming up such as cars, holidays etc.

If you’re looking to get your financial house in order and would love to have an expert do the legwork for you here, then please reach out. We work with people all over Australia and would love to hear from you.