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6 Steps to Improving your Budgeting Habits

8 min read
If the thought of budgeting makes you panic, don’t worry, you’re not alone. The fear of making and sticking to a budget is common – but it’s well worth overcoming.
 
In its simplest form, a budget is just a way of tracking your money as it comes in (though earnings) and out (via expenses). And knowing how and why your money comes and goes is the first crucial step to being in control of your finances. Then you can start building savings, planning investments and creating a strong financial future for yourself.
 
There are a lot of methods you could use to track your money, such as the popular 50/30/20 system (50% for essentials, 30% for personal spending and 20% for savings), the “pay yourself first” system that prioritises savings goals before allowing any spending, or the simple money bucket or envelope system, where you divide all income into specific categories.
 
Regardless of which one is your preferred method, there are six important but easy steps you should always follow to become a budgeting superstar:

 Step 1: Set realistic budget goals

There are two things to take note of here. First, you absolutely have to set goals. Without concrete goals, it’s hard to know what you’re aiming for and to measure your success. The goals could be a specific dollar amount, but are generally more successful when they are connected to something tangible (for example, saving for a holiday or a home deposit).
 
Next, you need to make sure your goals are realistic. You could tell yourself you want to save a million dollars – but is this really possible in a workable time frame? Try to set goals that fit with your income and lifestyle, that stretch you a little but are also reasonable in a sensible time frame.
 
It might help to keep the SMART approach to goal setting in mind as you set your budget, and try to make your goals: Specific, Measurable, Attainable, Realistic and Timely.
 

Step 2: Track how you are spending now

 
Monitoring your income and expenses is at the core of any budget – but what’s the best way to do this? You can always go old school and keep track of things with a pen and paper, but there are so many handy apps these days that can do this for you more efficiently.
 
Moneyhub’s Spend Tracker is perfect for watching your expenses and allows you to divide your money into spending categories (such as rent, groceries, entertainment, travel or emergency expenses) so it’s easy to see where your money is going and to make adjustments as needed.
 

Step 3: Control needs vs wants

 
It really helps to identify which of your expenses are ‘needs’ (essential for survival) and ‘wants’ (nice to have), and to factor this information into your budget. It’s still absolutely okay to have ‘wants’ in your expenses, but this helps you to eliminate unnecessary spending.
 
Is the fancy coffee you buy on your way to work every day really essential? Maybe it’s just a habit, and you’d be just as happy making a free coffee when you get to work. Or maybe it’s the highlight of your morning and brings you real joy. Are those books you’re buying really going to help you, for example for study? Or are they just a vanity purchase that will sit on your bookshelf? 
 
Ask yourself if each purchase has genuine purpose and value, or would that money be better put towards your financial goals. Also try applying some simple techniques to test the validity of each purchase. First, wait a week before making any purchase over a certain amount (eg $50). If you still really want the item a week later and believe it’s essential, then for it. The “pay-per-use” system is also helpful: divide the cost of the item by the number of times you’ll use it to get its true value.
 

Step 4: Design your budget plan

 
No two budgets are the same, because we all have different needs and goals. So create a budget that’s perfect for YOU. Figure out what your expense categories should be and set your own budgets for each area.
 

Step 5: Execute your budget plan

 
Having a good plan isn’t enough – you also need to stick to it. This is the hardest part, and it helps to automate your expenses as much as possible. Set up automatic transfers to cover recurring bills and try to get into good regular habits as much as possible.
 

Step 6: Set regular check-ins

 
Don’t be afraid to change and refine your budget if it’s not quite right. It can take a couple of months of adjusting categories, adding new expenses and revising goals to get things quite right. A good budget is a living thing and will often need some tweaks – but don’t use this as an excuse to blow out and overspend.
 
 
Common roadblocks to achieving success in budgeting:
 
  • Not being realistic
  • Creating a budget that’s too restrictive
  • Forgetting about small recurring expenses
  • Not including a category for emergencies
  • Making your budget too complicated
 
 
Budgeting your expenses shouldn’t be scary, but rather a way to get control over your money so you can make it go further. Getting visibility over your finances with an app like Moneyhub’s Spend Tracker makes it easy to see how your hard-earned money is coming and going, and to find ways to tighten your spending without causing too much pain. A few tweaks here and there can really add up over the course of a year, and could leave you with extra funds for a holiday, investment or savings.
 



The information in this blog post is general in nature and does not constitute personal financial or professional advice. It is not intended to address the circumstances of any particular individual.

We do not guarantee the accuracy and completeness of the information and you should not rely on it. Before making any decisions, it is important for you to consider your personal situation, make independent enquiries and seek appropriate tax, legal and other professional advice.

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