Budgeting sounds boring, but in the long term it can afford you the kind of fun you'll otherwise only dream of. Setting (and keeping) a budget helps you set goals and prioritise your spending so you can reach your endgame faster.
You'll always have enough money to spend when you stick within your budget, plus you'll be able to afford those major purchases you've been planning, like a house deposit or holiday.
Figure out your parameters
The first part is simple, but important – figure out your expenses! Go back over your bank accounts for the last few months and figure out what you spent. Make sure to take account of periodical bills like car registration that may come less frequently. You can use a spreadsheet for this or experiment with some of the myriad of apps available.
If you use a lot of cash to pay your expenses or just can't figure them out by going back over your bank accounts, try keeping track of your spending for a month, minimum. This should give you a good idea of your regular spending patterns. You should also get some ideas on where you could afford to cut back if need be.
Once you have your expenses sorted, figure out your income. Hopefully this is more than your expenses! The difference will be your savings – these are funds that can be used to invest in the stockmarket, put towards a house deposit, or simply save for your future self.
Work out what's reasonable
Once you have your income and expenses worked out, you have a baseline for setting your budget. According to ASIC's Money Smart website, the average single Australian under 35 years of age spends $849 per week. This includes $284 on housing, $122 on food and drink, $97 on transport, $83 on recreation, $24 on fuel and power, and $23 on medical and health expenses.
Use your income and expenses as a guideline for setting your budget across different categories of expenditure. Your budget should reflect your priorities – if saving for a share portfolio is important to you, you may have to forego the occasional treat.
It can help to divide your expenses into needs and wants. Needs are items such as housing, medical expenses, and utilities. Wants are discretionary – things like a new book, an upgraded phone, or another pair of shoes. Look to reduce or at least defer the wants. You can also trim your needs by, for example, checking for a better deal on your utilities or mortgage.
Stick to it
Setting a budget is only half the battle. The other half is sticking to it. You'll need to remember your budget so keep it somewhere close by, like on your phone. Then, you'll need to track your progress against it. You can use your original spreadsheet for this or an app.
If you're tempted to buy something outside the budget try to wait for at least 24 hours. Often if we wait a while the urge to purchase passes and we find we can do without whatever thing it was we thought we needed.
Foolish takeaway
When in doubt remember the end goal – the reason for your budget. Whether it's saving for a holiday or investing in your share portfolio, a small sacrifice today will make a big difference tomorrow.
