How to create a budget

Part 2 – Creating a budget

“It’s only a dream until you write it down, and then it becomes a goal” ~ Emmitt Smith

You’re taking steps to becoming a first home owner and it’s time to take charge of your finances.  There’s so much you need to consider to set yourself up for successful home ownership and the team at First Choice Home Loans Qld would like to get you started on your very first budget. Budgeting can be an overwhelming process but, we’re here to tell you, it can also be very enlightening and empowering.  Imagine when the time comes; owning your own home, being able to pay off your mortgage and still be able to live your best life.  Welcome to the world of budgeting.

Before you even start thinking numbers, you need to think letters.  Specifically, think Y.  Why do you want a budget?  Knowing your why will help you be more conscious of your financial goals and keep you motivated to stick to it.  Be specific.  We know you want to save for a house deposit but how much? Your goal has gone from “save for a house deposit” to “save [x amount] for a house deposit”.  Now, go deeper.  Set yourself a deadline.  By when?  Your goal has now gone from some vague statement about a house deposit to ‘save [x amount] by [timeframe] for my first home. Starting to sound exciting, right?

Now, you’re ready to think numbers.  Start by listing all your revenue streams. Wages are a given but, don’t forget about any other forms of regular income you may have.  Government benefits, investments, business income or you might even have a side hustle going for some extra pocket money.  Budgeting is about making the best use of your income, so ensure you capture all your earnings. 

For some, this may not be a simple exercise as incomes may fluctuate due to rostering or working for commission or being paid hourly.  In this case, we recommend you work out an average based on the previous few months. Another big budget tip from us; if your income changes regularly, consider paying yourself a “regular wage”.  This means keeping any extra money aside and you can either use it to top up a bad pay period or add more padding to your savings. Sounds boring but, it will get you to your goal just that little bit quicker.

Once you know how much you have coming in, it’s time to work out how much you have going out.  This can be tedious as you need to be thorough. Try having a few bank statements handy so you don’t miss anything.  Some expenses will be regular like your phone bill or electricity but others may be variable. This might include things like your groceries and fuel. Don’t forget about those annual expenses too like car rego or insurance. Remember, they all need to be accounted for.   Buy your coffee on the way to work every day, write it down! The more specific you are at listing ALL your expenses and spending habits, the more manageable and user friendly your budget will be in the long run.

Once you have all your ins and outs, consider the type of budget that suits your style. Would you prefer a more liberal approach that allows a bit more give and take? If this sounds like you, you could try the 50-30-20 method.  Essentially, 50% of your income goes to all your needs, 30% to cover your wants and the final 20% goes straight into savings. It might sound super easy but, it still requires discipline. How do you plan to stop yourself dipping into the necessity “pocket” when you’ve run out of want money and tickets for a great band go on sale?  We’ll be honest here, this isn’t our preferred budget but, it would also be remiss of us not to give you options.

With that in mind, on to our preferred budgeting technique.  It’s designed to give you serious structure and accounts for every cent of your income with the desired outcome of no nasty surprises and a house deposit on the way!  And, to make it even easier for you, you can find our budget planner here. 

If in your planning, you discover your expenses are more than your income, you have a bit of a problem.  Nothing you can’t solve though.  Your income isn’t likely to change quickly to match what you’re spending but… you can make immediate changes to your spending habits.  It may take you a few attempts but, play around with the numbers in front of you and see what you can reduce or even eliminate from your outgoings.  You’ll be surprised at how much disposable cash you can find when you need to.  Remember, the end game here is to bring your expenses down to match your income but still create a budget that works for you.   If you’re still having trouble finding that magic number, consider some bigger changes like consolidating debt or paying off “bad” debt such as high interest credit cards.

Once all of this is done and your ins matches your outs, voila!  You have your budget!

Next challenge; sticking to it.  Don’t worry, the team at First Choice Home Loans Qld has a few pearls of wisdom for you:-
– If your budget isn’t realistic, it’s nothing more than a wishlist.  The budget you set is there to serve a purpose but, not at the risk of making you completely miserable while doing it.   Too many cutbacks and no more fun will see you back at the starting blocks of budgeting before you can say ‘house deposit’
– You’re not an island.  Make sure you tell friends and family that your spending habits may change. It will be much easier to make the necessary adjustments if you have the support of those around you.  Instead of meeting them out, maybe it’s time to entertain at home. 
– if you’re doing this budgeting gig as a duo, make sure you both understand what’s required.  It’s not fair if one of you is trying super hard and the other is still spending frivolously.  Not good for the budget and definitely not good for the relationship.
– Don’t forget to work out your dollars and cents with the same frequency.  For example, you’re setting your budget weekly but your car rego is annual.  In order to find the weekly allotment that needs to be put aside, you need to divide that annual bill by 52 weeks in the year. 
– Be accountable.  What checks and balances and even consequences are you going to put in place to keep you on track and steer you back to the path when you stray?  And, you will but, that’s ok.  Make the mistake, learn from it and keep moving forward.
– Review your budget when something changes.  You may have a long term goal of 5 years but, your circumstances are very likely to change in that time.  Make sure your budget keeps moving and evolves with you.
– And finally, whatever your thoughts on budgeting, don’t let it stop you from being better with your money.

Next installment coming soon: Part 3 – Preapproval