If you’re planning to start a budget, you might be tempted to jump in headfirst. But we caution you to take a minute. In fact, take a few minutes to read over the steps we’ve set out below.
You see, we think budgeting should have a purpose. There should be a mission behind it.
And the clearer you are on that mission at the outset, the more chance you may succeed.
With that in mind, read on for our tips on the six things to do before you put any budget in place. You can thank us later.
1. Determine why you want a budget
Budgeting is pretty much universally considered a handy tool for keeping track of your money, but we all have different reasons for starting a budget.
Some of us set up budgets because we want to be mindful about where we spend our money and potentially cut back in certain areas. Others of us set up budgets because it helps us stay on track overall and thus optimise how much money we save.
Before you set up your first budget, it’s worth thinking about what you’re hoping to achieve. This will help you as you move forward with the next steps.
2. Prepare the apps/tools you plan to use
Once you’ve committed to starting a budget, you’ll need to figure out the best tools to use.
One way is to use a basic spreadsheet. You can create one in Excel or Google Sheets and use it to track your expenditure. While you will have to manually fill it out, some banks have an option for you to export a file of your latest transactions in a CSV format. You can then copy the transactions into your spreadsheet and start categorising and tracking.
If this sounds too time-consuming and complicated, you might want to consider the various budgeting apps available online, all of which automate budgeting.
A few options available in Australia include PocketSmith, MoneyBrilliant, and Pocketbook.
These apps connect with your bank and automatically grab the latest transactions. Most budgeting apps will then categorise your transactions for you, but some let you choose your own categories, set up rules, etc. so that you can tailor your budget.
Once you’ve chosen the budgeting tools you’ll use moving forward, it’s time for the next step.
3. Do a deep dive into your current spending habits
Now it’s time to get into the nitty gritty stuff.
No matter what your goals are, when it comes down to it, budgeting is about paying attention to your money habits. You probably won’t be able to move forward with setting and achieving your goals without having an idea about your current spending and saving habits.
So, once you’ve set up the tools or spreadsheets you’re going to use, we recommend loading the last three to six months’ worth of transactions into your tool. Then, you’ll want to start categorising these transactions so that you can start getting a clear picture of where your money goes.
This is when you’ll start to pick up on the “little things” that might make a big difference. For instance, you might start to realise you spend way more than you thought on Uber rides.
This is also the part where your budgeting goals should start to crystallise within your head, just in time for you to take the next step.
4. Set some budgeting goals
Now that you are clear on the reasons why you want to start a budget and you’ve started to get into your spending habits, it’s time to set up some budgeting goals.
After all, it’s always good to have a clear mission in mind.
So, let’s get back to the reason behind your decision to start a budget. If, say, it’s because you want to cut back in certain areas, your budgeting goal might be to “reduce spend on Uber and other rideshare companies by $20 a month by mid-year.”
If, say, it’s because you want to stay on track overall, your budgeting goal might be to “spend no more than $1,200, every month, on ‘wants’ such as going out, etc.”
There are two things to remember when setting your budgeting goals.
Firstly, you’ll want to make your goal as specific as possible. If your goal is something broad such as “I want to spend less money,” you don’t really have anything clear to work towards. Within those parameters, even spending $1 less each month would technically mean you’d achieved your goal, but would you really feel as though you had kicked some ass? Not so much.
Secondly, you want your goal to be as realistic as possible. If your goal is “I want to save $50,000 this year,” but you only make $60,000 per year, it’s fairly unlikely you’ll meet your goal.
With that said, don’t make your goal too easy, either. After all, you want to have a sense of achievement after all your hard work, right?
Speaking of hard work, let’s move on to the next step.
5. Determine your weaknesses and set up hacks to help
Most of us turn to budgeting because we’d like to be better at managing our money, which sort of implies that we’ve got some things to learn. So, don’t expect to be perfect at budgeting straight away. You may never get it completely right, in all honesty.
That’s why it’s important to try and nip any perceived weaknesses in the bud early on.
Here are some examples of potential problems and their potential fixes:
- You want to start a budget so you can spend less and save more. In the past, you’ve had a habit of dipping into your savings each month. That’s your weakness. So, the fix might be to set up a separate savings account — even at another bank — and transfer the minimum amount you want to save into that account at the beginning of each pay period.
- You want to start a budget because you’re spending too much money on Ubers. That’s your weakness. So, the fix might be to use budgeting software/apps that allows you to categorise your transactions. Then, you can check in daily (set a daily reminder) to make sure you’re staying on track. (At worst, you’ll know when you’re getting close to hitting your limit.)
These are just some ideas. Consider the problems you’ve had in the past, along with your budgeting goals. Then, think up ways that you can stay on track, such as...
6. Set up a schedule for checking in
The final step to take before actually beginning to budget is actually the easiest. All you need to do is set up regular reminders to check in on your budget.
If you know that money is tight and you want to be stringent about your budget, you might be best setting a daily alert/alarm on your phone. Don’t allow yourself to “clear” the alarm until you’ve checked in on your spending and taken care of any issues.
If your budget has broader goals/guidelines to follow, you may just want to check in on, say, the first Saturday of every month or every payday.
How often you check in is up to you and your schedule should be guided by your particular needs and goals. Just remember: the more you stay on top of your budget, the better chance you have at successfully achieving your objectives. Good luck!