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How do I create a budget plan?

When thinking about how do I create a budget plan, if any of the following sound familiar:

‘Budgets are boring’ or ‘I’m spending more than I can afford’ then it’s time to take action.

When you hear someone say budgets are boring, chances are they’re struggling with debt.

And yet budgets equate to financial freedom because of the simple act of paying attention to money. Over the long term it’s one of the easiest ways to build wealth.

Think of a budget as a realistic plan – based on income, expenses and goals – that will get you out of debt. By re-allocating money to where it matters most, only then can you stay on top of finances and start putting funds towards future projects.

Sure getting started can be overwhelming, but it’s worth the effort to create a budget plan.

Here’s 7 reasons why you’ll:

  1. Stop living from pay to pay
  2. Get a grip on impulse spending
  3. Find the cash to pay that next bill
  4. Set and prioritise financial goals
  5. Build up an emergency fund
  6. Start a savings plan
  7. Live on less, and retire early

Want more reasons to take the boredom out of budgeting?

Then follow these 5 easy steps:

Track your spending when you create a budget plan

Look at money going in and out for at least a month using your mobile phone, tablet or app to track spending. There’s nothing more exhilarating than monitoring your net worth so redo your budget every six months to make sure it reflects your current income, spending and what you want to achieve. Once you are on top of your finances, you only need to update a budget once a year.

Live within your means

Once you see what funds are coming in and going out, you’ll most likely need to start living within your means. This is more than just balancing your budget. It’s about spending less than you make. But it doesn’t have to mean doing without, just cutting back.

Pay down debt

Credit card interest costs big, and it stops you from saving for a major goal when you create a budget plan, like a home or that dream holiday. The most powerful thing you can do next is redirect as much of your earnings as practical to paying down debt.

Make earnings count when you create a budget plan

Allocate at least 10 per cent of earnings towards building up a savings safety net. Use direct debit or get your company payroll to split payments into three accounts — 10 per cent into savings account that earns compound interest, 45 per cent in a cheque account to cover bills/debt, 35 per cent in an easy-to-access account for living/entertainment.

ASIC also produce a useful guide about Budgeting.

If you’d like to chat about finance, please contact us.

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