So 2020 hasn’t been the year any of us expected. It seems like everything was turned upside down. Your plans for spending and saving money may have taken a detour. If so, you’re not alone.
Are you ready to start looking ahead and create a new financial budget for 2021? Take control of what you can and move forward? We can help you get started.
Your first step is to set goals and complete a financial goals worksheet (PDF) to identify and prioritise:
Short-term goals - six months to five years
Mid-term goals - five to 10 years
Long-term goals - more than 10 years
Make note of the current savings you’ve put toward each. If you’re short of money for a goal, how do you fund that?
Yes, the dreaded “B” word. (Budget.) Where can you cut back? What are your priorities? Because when you can “find” extra money to save and invest (and potentially grow), goals can become more attainable.
‘Back in’ to your budget.
Some people resist doing a budget because they think it’s going to restrict them from spending the way they want. The reality is that most of us overspend just because we don’t have a focused plan.
Think of a budget as a tool that organizes your monthly cash flow to include your saving and investing goals. To ‘back in’ to it, you pay critical expenses first, and then decide what to do with the rest. That’s a shift in thinking. Rather than treating a budget like it’s a starvation diet, you’re putting yourself in control of an organized financial plan.
Here are step-by-step instructions.
Use our downloadable budgeting to fund your goals worksheet (PDF) and jot down what’s coming in, what going out. Look at recent bills plus bank and credit card statements to give you the facts.
Adjust. Prioritise. Revise, as needed. (Fixed expenses = bills you’re committed to paying, like a mortgage, car payment, or utilities. Discretionary = you have some control over what/how much you spend, like clothing or hobbies.)
Make note of your monthly take-home pay. Subtract your new/revised budget. See what’s left that you could put toward your goals.
For each of your goals, check whether it’s fulfilled or needs more funding, and if it’s a “critical” goal.
Decide how much of the extra money you’ve found could be put toward your critical short-, mid- and long-term goals. Log it on the worksheet. Once you’ve made good progress toward your critical goals, start tackling the rest of them.
Why do you need a budget?
A budget can be helpful if you want to take control of your finances - it’s a great first step to helping you manage your money better, by clearly showing how much you’re earning, how much you should be spending and what you’re spending your money on.
Your budget can help give you insights into how you’re spending your money and identify areas where you may be overspending or could stand to spend a bit more. This could help you to prioritise between essential (non-discretionary) and lifestyle (discretionary) expenses. In short, a budget can serve as a reminder of what’s a necessity and what’s simply an indulgence that could lead to overspending and financial stress.
Your personal budget will calculate either a surplus (meaning you have the right amount of income to cover projected expenses) or deficit (meaning your expenses are greater than your income). If you have a surplus, then your budget can help you identify the right amount of money to set aside each month to reach your savings goals. If you have a deficit, then you can look at each of your spending categories and determine where you might tighten your belt to help reach those goals.
Managing your budget and aiming for a healthy surplus (saving more than you spend) can help you achieve goals big and small-whether you’re saving up for a long-weekend getaway or a down payment on a home.
Check that your insurance policies suit your needs
It’s easy to forget about your insurance, after all, it’s only there for when you need it. But insurance companies are reactive to big events, so it’s a good idea to make sure your policy covers you for what you need.
For example, remember earlier this year when travel insurance companies took anything to do with a pandemic out of their policies? It’s worth reading the fine print to make sure you’re not left out in the cold when a crisis hits.
Australia has recently endured fire, hail and, of course, coronavirus, so it might be a good idea to check that your home, car, and health insurance policies cover you for any events that might impact you. It can cost a bit more to add the extras you need, but it’ll be worth it if disaster strikes.
Check on your superannuation
A lot of people tend to ignore their super until closer to retirement, but it’s a good idea to be looking at it now. For starters, make sure that all your super is consolidated into one fund. It’s easy to set up multiple super accounts after switching jobs, as each employer will often have a designated fund, but this will not serve you in the long run.
Luckily, the ATO now allows users to track any super funds that are linked to their tax file number. Bringing them all together means your super will earn more interest and you’ll save on fund fees.
It’s also worth looking into what fees your super fund is charging and how its return rate compares to competitors. If you’ve been considering switching to a different super fund, taking the time to research over the holidays can be a great time to evaluate your options.
Get into good habits
If you’ve ever needed to apply for a loan, you’ll know that it often involves your credit score. This is a personal score built upon personal financial information that takes into account things like the amount of money you’ve borrowed in the past and whether you pay things on time.
A low credit rating can often stand out on a loan application, so you should start getting into good spending and saving habits now. Paying off your credit card bill, meeting your car repayments or settling any instalment purchases, like afterpay, on time is a great way to show you’re reliable and can handle your money. Letting debts get out of control is a red flag for any lenders, so if you can get in the habit of paying things off as they arrive, you’ll be better off in the long run.
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