Questions and comments welcomed!

No related posts.

Related posts brought to you by Yet Another Related Posts Plugin.

Step One: Take out all the bills and receipts and de-dupe them. That is, if you took cash out of the atm and have receipts for things you paid for in cash, remove the receipts and just keep the ATM receipt. If you have bills and a receipt for paying them, remove the receipt (but be sure to mark the bill as paid).

Step Two: Go through all the bills and receipts you have left, and sort them into categories. Here are some rough ones that I suggest, but put them into whatever piles suit you best.

• Charity (including regular & ad-hoc donations – this is particularly good as a category for your tax return!)
• Clothing / Shoes / etc. (including cleaning, repairs & purchases – you can subcategorise these later if you want)
• Food (groceries & eating out)
• Health (insurance, scripts, vitamins & professionals – eg. doctor, dentist)
• Household (insurance, mortgage, rates, purchases (eg. furniture / maintenance), housekeeper, utility bills can also be included here)
• Personal (grooming – eg. hairdressers, makeup products, etc. hobbies, career expenses (also good to have for your tax return), recreation & entertainment)
• Transport (car insurance, registration, maintenance, servicing, fuel, parking, taxis & public transport)
• Utilities (if you didn’t include them under household)

Hot tip: if a receipt fits into two categories, you need to rethink your categories. They should be broad enough that more than one receipt fits into them, but specific enough that there’s never two camps for one receipt.

Step Three: Have a think about other bills you pay or things you buy which might not happen every month, but more like every quarter or year. For example, insurance, rates, some bills like water or electricity can often be billed like this too. If you can, dig out the last one of them that you paid, add 5% and then divide it by the number of months between bills. For example, a $100 bill you get every quarter, you’d add 5% to make it $105 then divide it by three to get $35 per month. If you can’t find the last bill, make your best guess but add 10% and do the same.

Step Four: Write down or otherwise record all the ways you regularly get money. This includes things like your salary, board and rental income, dividends, babysitting money and anything else you get on a regular basis. If it’s stuff you’ve sold on eBay or money you found in the street though, don’t worry about it here – it’s irregular and we can’t budget with it.

Step Five: Add up all your income sources for a calendar month. It doesn’t matter if you get paid weekly, fortnightly or monthly, you’re going to budget per calendar month.

Step Six: Add up all your monthly expenses per category – including those you noted that you don’t pay every month, but you’ve calculated how much they would be each month if you paid them like that (this was in step three).

Here’s the big question. Are you spending more than you earn? If so, you’re going to need to stop that quick smart, so start looking for fat in your expenses – ie. where you can cut back. I’ve written a post before that might help you come up with some ideas – read it here. If you’re not and you have some left over – congratulations! You’re on your way financial success. If you haven’t already, read my post on working out your goals.

Step Seven:In your budgeting software, record all the different types of regular income you have, as individual items. eg. if you earn a salary, record that figure separately from, say, rental income. Next, enter all the categories of expenses you have that you identified when you were sorting your bills and receipts in step two. Finally, record the amount you spent last month, plus 5% in each of these categories (you should have these numbers already from step six).

This now forms the basis of your budget.

So, if you’ve read part 2 of this getting started series you’ll know what your goals are and how much you need to put aside to achieve them. I’m currently working on smartening up my Mandarin skills (I’ve been learning for some time), and I know this costs me $130 a month. I’m also saving for my wedding in January. This means I’ve been putting away a certain amount each month pretty much since we got engaged 18 months ago so I’ll be able to pay for it in cash.

The next question you need to answer is… is there enough of a (positive) difference between my income and expenses that I can put aside enough each month to fund my goals? If not, what would I be willing to change to free up the necessary cash? Add another category to your list to cover your goals. If there’s an actual expense every month associated with achieving your goal, like my Mandarin classes then you’ll probably add it as a subcategory under ‘personal’ or whatever you chose. If it’s something you won’t be spending the money on for a while, you can probably add a category like Savings and then have subcategories (emergency fund, travel, wedding, etc.).

Step Eight: Maintaining the budget. Now, anyone can work their way through the first seven steps listed here. The trick to going from amateur to pro in the budgeting world is knowing how to maintain it. So, you’re going to keep that shoebox or folder or whatever it was you used before and keep sticking receipts and bills in it. Preferably every week (it’s waaaaay easier if you do it this often) you’re going to record all your expenses into your budget. You’re doing this for a number of reasons:

1. Doing it every week means that you can see if you’re going off track and correct it before the month is up.
2. Being this involved with your money will help you to understand where it goes and will also act as a subconcious incentive to stay on target
3. Doing it every week is a lot quicker and less painful than doing it every fortnight or month.

If you have an iPhone, there are apps that will help you with this step.

I can’t stress enough the importance of step eight. If you’re not willing to do this, you deserve to be in a poor financial position and you deserve to be bad with money. If you just can’t do this for some reason, you can use an automated tool like Mint, Wesabe or ANZ’s MoneyManager (the links are in the toolbar on the side of this page) – it will categorise your transactions and add them up for you. I really recommend doing it yourself though – even if only for a few months. What you learn will be invaluable.

Good luck! Budgeting successfully really is easy… and whilst it might not seem like it at first, it really is a type of enjoyable when you have complete financial peace of mind.

Questions? Comments? Feel free totweet or email me!

No related posts.

Related posts brought to you by Yet Another Related Posts Plugin.

Unfortunately, many people use a poor financial situation as an excuse to make unhealthy decisions; cancelling gym memberships, eating fast-food meals that are advertised as “deals” and spending more time in front of the TV. 
Dr Cate Burns from Deakin University, has studied the relationship between socio-economic standing and diet. Her research is incredibly interesting.

My research would suggest that how you react to the credit crunch depends on where you sit in the income range, she says.

Those at the top dine out less and drink cheaper wines, those in the middle change from branded to generic products and choose different cuts of meat or quality of fruits and vegetables.

Those at the bottom choose foods that will ‘fill up’ their families for the least cost.

The lowest-income consumers may know that is not healthy, but filling up is the most important consideration.
Unfortunately, this is a double-edged sword. Not only is an apparently ‘cheap’ fast food meal often more expensive than a home-cooked alternative, it also has a significantly reduced nutritional value with “empty calories”, meaning consumers will be hungry again in a shorter period of time. Moreover, with a diet suffering reduced nutritional value, medical issues associated with malnutrition are rampant… and the management of these problems often doesn’t come cheap.

How can we use these learnings to help our future decisions?  A few tips:

1. Plan your meals in advance. You’ll be able to match your required ingredients against specials / discounts at supermarkets in your area.
2. Search for frugal recipes. I’m going to launch a new section of this site for budget-based recipes. You’ll find a new one each week!
3. Look at the cost per unit of whatever you’re buying. Don’t automatically assume bigger packaging will always ‘work out cheaper’. 
4. Assess your diet for nutritional value. It doesn’t matter how cheap it is, if you’re going to be hungry again very soon then it doesn’t add up.
5. Make it easy on yourself to make the right choices. See my earlier post on saving money on groceries – particularly item number 8 about embracing your flaws.

Got something to add? Please feel free to email or tweet me!

No related posts.

Related posts brought to you by Yet Another Related Posts Plugin.

For example, $10 a day in coffee and lunch over a forty year work life adds up to almost TWO MILLION DOLLARS when invested at 10%* with the interest reinvested.

So, with that in mind, here’s my list of the Top 20 things that will eat into your budget, mess things up, and generally cost you a fortune over time.

1. Takeaway coffee – (tea, hot chocolate, whatever) buy a coffee machine, buy your own beans, bring a thermos to work, do whatever it takes… just don’t make grabbing a drink from Starbucks (or other venue of choice) on your way to work a habit.
2. Buying your lunch – Bring it from home, whether leftovers or something you made specially. My boss (and keep in mind I work for a bank) used to love to tease me senselessly about bringing my lunch to work every day until I did some maths for him on his whiteboard and showed how owning a small negatively-geared investment property cost about as much as buying lunch every day. He still buys his lunch, mind you… I just don’t cop the grief.
3. Magazines – Borrow them from the library or get a digital subscription (I can recommend Zinio for e-subscriptions as little as $5 a year, and through the Read Green Initiative you can get one for free!
4. Lottery tickets / scratchies – Invest the money instead – significantly more likely to return on your investment!
5. Snacks – Buy them in bulk at the grocery store and bring them with you or stash them at work.
6. Drinks on the go – I still find this a bit surprising, but I never bought (or had bought for me) a drink when I was out until I got my first job. My mother brought them with us everywhere.
7. Manicures, pedicures, massages – I could write a list the length of my arm… failing medical requirements for the latter of the three named offenders (massages), none of these are necessary on a regular basis and in most cases you can perform these yourself (and with practice, better than a beautician!).
8. Pay (cable) TV – The commercials are a pot of crock. It is NOT “just good thinking”… you will NOT spend more time home as a family. You’ll just spend more time arguing about what to watch. I lived the first twelve years of my life without a TV, now whilst I’m not suggesting everyone do this, I AM telling you that you can cope just fine with regular TV. Nothing to watch? That’s what board games, books, walking the dog, chores and come to think of it – borrowing DVDs are for! If you need more convincing, consider my favourite adage – are you likely to wake up one day in your eighties and think ‘gosh, if only I’d spent more time watching television’
9. Breakfast – Boing hand in hand with takeaway coffee, muffins and toasted sandwiches and pastries are another money sapper. Eat it at home, or at the very least, buy a packet of fruit toast (or whatever your poison) and stick it in the fridge at work.
10. Cigarettes – I once read a case study where the gent said his parents never had any money to save or invest. He also indicated they’d both been smokers. The editor he wrote to calculated that if they’d just bought shares in the company of the cigarette brand they smoked instead of buying packets of cigarettes, they’d have left their kids with over $3 million… not to mention having potentially lived long enough to enjoy it. Smoking gives an extra kick to your hip pocket too though – the cost of cigarettes PLUS the cost of managing all the side effects of smoking, physical, medical and cosmetic.
11. Takeaway (takeout) food – Being a reformed takeaway junkie, I can tell you this is all about habit. I can highly recommend buying foods that are semi-prepared and making side dishes to go with them if you’re short on time. If it’s the style of food you’re after, making it as a family is a great experience. Having burger night, nacho night or taco night is both cost effective and more nutritious! Besides, your kids/partner/flatmate learns to cook SOMETHING.
12. Newspapers – You can read these online these days, haven’t you heard? I’ll readily admit I’m a sucker for Saturday papers though!
13. Fancy mobile (cell) phones – Being Gen Y, this one kills me… but really – you don’t actually need to be able to determine the name of a song at the drop of a hat, or check Facebook on the go, or watch TV on the train. You just don’t. Want, yes. Need, no.
14. Books - I somewhat recently found out that my local library is 1) open 7 days a week and 2) entirely online. I can order and reserve books, they text or email me when they come in, I go pick them up and return them sometime in the next 3 weeks. I can even renew them online. I love love love bookshops, but at about $25 a pop for your average book, it adds up damn quick given they’re often read just a few times.
15. Cars & Taxis – I lived without a car for four years. I now carpool to work a few days a week (public transport the others!) and I’m constantly surprised by the number of people in cars with just one person. They’re wonderfully convenient and everything else, as is the humble cab, but running late for work is not an excuse to drive or catch a taxi unless you’re a brain surgeon and someone might actually die if you get there late. Set your alarm 15 minutes earlier.
16. Gym memberships – Here’s a big secret, folks. Gyms do not make money when you go. They make money when you don’t. When you go, you require the place to have a certain number of staff, create wear and tear on the equipment and generally cost money… thus the whole ‘contract period’ of 12 months or so. With this in mind, if you’re not going – cancel it now. If you just do classes, consider changing your membership to something more appropriate. If you’re just using one sort of equipment, well welcome to the great outdoors.
17. Food - Recent research has found that over 25% of food bought by Australians ends up in landfill (In the UK, this is 30 – 40% and in the US about 30%) In case you’re reading this on a Monday morning, % of food thrown out = % of the money you wasted on it. These % are both in the form of food past its expiry and in plate scrapings. It gets worse. If it’s expired food because you couldn’t be bothered / didn’t have the time to cook, it’s a double whammy – not only did you waste the money by throwing out the food, you compounded it by buying takeaway. Left meat in the fridge that went bad? Now you’ve not only wasted a bunch of money but you’ve contributed to an animal being slaughtered for no good reason.
18. Drycleaning – In many instances, fabrics don’t actually have to be drycleaned and will in fact last longer and be better for the environment if they’re handwashed. Obviously this doesn’t apply to things like leather jackets and wedding dresses, but it’s not particularly necessary to get your shirts drycleaned every week.
19. Home phones – With the pricing of mobile phone plans these days, there’s now little reason to have a home phone. If you have high-speed internet access, you can make phone calls online for a fraction of the cost. Better yet, you’re really unlikely to get sales calls during dinner on your mobile. Don’t be fooled, even if you use your home phone rarely, you still have to pay line rental and installation costs.
20. Brand name products – Trash TV has covered this one hundreds of times, but I’ll say it again. With the exception of highly specialised products (organic buckwheat flour, etc.) most basic kitchen items are much of a muchness. Flour is flour, sugar is sugar and rice is rice. You’re honestly not getting anything different except slightly more ornate packaging. (There is a huge exception to this rule: toothpaste. Take it from your Aunty Sam, DO NOT buy home brand toothpaste).

Even if you think there’s absolutely no chance you can find any money to save/invest/pay off debt and that you “run a tight budget”, you’ll probably find that you have a Latte Factor somewhere. Most of these things, are “stuff” we take for granted, have convinced ourselves we need or are reasonable to purchase.

I’m not even considering saying that you should never spend your money on these things… but I am going to say that you don’t need them frequently.

Feel free to email me if you have additions to the list!

*Technically this is the average rate of return of the share (stock) market over time. However, this refers to ‘the market’ which is a variety of companies across different industries. It does NOT mean that if you buy shares in a company you will get 10% pa. It will vary year to year. Keep in mind though, that when investing in this sense, you’re investing for the long term, and you’re not plonking it in a savings account with an advertised interest rate.

No related posts.

Related posts brought to you by Yet Another Related Posts Plugin.