Money Talk | Back to basics

Financial Advisers (me being one) talk to clients commonly about how to invest their money – but how do you get money to invest in the first place?  It’s by simply having money left over after spending each pay check.  Sounds simple doesn’t it but it’s where the majority of us fall down.  We are not taught how to manage our money effectively.  So this week I’ve taken on the brave task of sharing my top tips on the Savvy Mumma podcast.

How to save more, how to spend less, how to ‘get ahead’ it all comes back to ‘knowing your numbers’ – also known as the art of ‘budgeting’.

So many people hate the B word because it seems to have deprivation associated with it. If there’s one thing I can impart on you from this podcast episode (and my philosophy) is that a budget is simply a ‘spending plan’. It’s your opportunity to tell your money EXACTLY where you want it to go and if that involves a morning coffee, a shopping spree, eating out on the weekends, or whatever your indulgences are then put it in the budget, make room for it and enjoy it!

There is a BUT though…there must be room for it among all the other essential things you need to fund and you must have some money left over at the end of spending your paycheck to put towards ‘future you’!

In the midst of a global pandemic, where people’s livelihoods have been stripped out or may be under threat, you need no convincing that having a good handle on money matters is something important to do but where and how to start? These are the 5 steps I discussed on Episode 5 of Savvy Mumma podcast, Money Talk – Back to Basics:

1. Create a Budget

It’s so important to know the numbers on what it costs to run your life.  Separate the essentials (the must haves) from the lifestyle (nice to haves). 

Firstly, look at your Essentials – Fixed and Discretionary expenses separately:

  • Fixed Essentials – these are the must haves! Roof over our head (mortgage or rent), power/utilities, phone, insurances, rates, other loan repayments etc. These are usually set payments and should be easily predictable.
  • Discretionary Essentials – Groceries are an item that fall into this category, along with transport as an example. They are things we need but we can spend a variable or optional amount in these areas. The key here is to create an allowance that fits within your budget so that you don’t overspend and it provides comfortably for your needs.

Next up, look at your Lifestyle expenses – entertainment, clothing, beauty, holidays, getaways, memberships, subscriptions etc. All the fun stuff!

With all of these items in your budget, start by looking at what you spend now on each item and as you work through the next step, refine it. Remember the key is make sure you are spending less than you are earning.

2. Spring-clean

What can you get a better deal on?  Contact your bank, utilities, phone, internet providers.  What subscriptions, memberships, plans have you got that you don’t really need?  You can always reinstate later if you find you are missing them. 

Line by line review expenses and ask yourself, does this align with my values and goals?

3. Streamline

Automate and smooth payments where possible.  You can do this by setting up direct debits for regular expenses to ensure they are paid on time and you don’t need to worry about it. You can smooth payments with some utility providers by making regular payments towards your bills. You could also put money aside each pay to a separate account as a ‘bills buffer’ to ease the load of big and irregular expenses.

4. Automate your money

After you’ve finalised your budget, you can divide your pay-check into separate accounts, take care of the ‘essentials’ firstly and then give yourself an allowance for your discretionary and ‘nice to have’ spending.  For the lifestyle spending, I suggest doing this on a weekly basis regardless of your pay cycle, so you don’t risk a blow out and don’t have long to wait until it’s ‘topped’ up.

5. Track your spending

Track your actual spending against the budget and allowances you’ve set yourself. I suggest doing this for at least 3-6 months minimum and make any necessary tweaks along the way.

So if you need some further convincing on why a budget is important, here it is:

  • It puts you in the drivers seat and connects you to where your money is going
  • You get to make conscious decisions about what you spend money on
  • It makes purchases so much more rewarding
  • It should keep you out of unnecessary debt – because you will be spending within your means

Now, on a final note, you will most likely have choices to make when you do your budget, on things that are in or out and what amounts you want to allocate to certain areas of your life.   When it comes to the lifestyle expenses always let your values guide you.  This is why is so important to to think about what’s important now on the journey and what’s important in the future for the bigger picture you are working towards.

Ready to get started? You can download my Spending Plan/Budget Template here

You can subscribe or listen to the Savvy Mumma Podcast on Apple or Spotify.

Want to take the next step? Enrollments are open for Money Mode’s kick-start course

Renae Vercoe
Founder of Money Mode, financial professional, passionate educator, partner, mum and financial freedom fighter!