6 steps to create a budget that builds wealth

6 steps to create a budget that builds wealth

It can seem impossible to put money away in savings when the cost of living is high and your pay just seems to disappear each week. I’ve found that if you have a clear understanding of your cash flow – that is your incomings and outgoings, it doesn’t have to be like that and you can start getting ahead by following our simple tips.

Step 1: What is your incoming?

Start by writing your weekly/fortnightly/monthly net (take-home) pay at the top of a fresh sheet of paper.

Step 2: what are your regular outgoings?

Next we’re going on a deep-dive into our cash flow by writing out all our existing and regular expenses (even small ones like Netflix and Spotify, the laksa you get for lunch, or the coffee you get every morning). Here’s an idea of what some recurring and existing expenses might be:

Tip: be explicit with each type of expense – for example, don’t just lump “insurance” into one bracket, separate out all your insurance payments.

  • Rent/mortgage
  • Internet
  • Utilities (electric, water, gas, etc.)
  • Mobile phone
  • Transportation (car payment, petrol, public transport)
  • School fees/child care
  • Personal insurance (Life and disability cover)
  • Health insurance
  • Car insurance
  • Home insurance
  • Groceries
  • Pay TV (Foxtel, Netflix, Stan)
  • Music (Spotify, Pandora)
  • Beauty products (or stuff like beard oil, if that’s your thing)
  • Pets
  • Don’t forget write down any expenses you may pay annually as well.

 

Step 3: factor in actually enjoying life!

I like to be realistic when it comes to managing cash flow whilst being able to enjoy life a little bit. After your expenses you should allocate about 30% of surplus to enjoying yourself however you see fit! A proper savings budget doesn’t work if you’re not actually enjoying yourself along the way.

Step 4: understanding your cash flow position

The next step is to subtract all of those expenses from your net pay at the top of your page. After deep-diving into our expenses what is your result?

Got money left over? Lucky you! This means there’s some money available to put into savings. There’s a key step to ensuring that money gets put into savings that we’ll cover in step 5a.

Running at a negative? It’s time to move on to step 5b with the plan to end up at step 5a.

Step 5a: I am rolling in cash!

Awesome news! It’s important that after your regular expenses and some spending money for you that you set up an automatic savings plan for your remainder to be automatically debited out of your bank account and put into a savings account. This way your savings happen without you really noticing and it becomes a habit.

Step 5b: It’s time to cut costs to get back in the black.

These may be clichéd but they’re clichéd for a reason. You can easily cut costs immediately and improve your savings over time by:

  • cooking at home
  • cutting out pay TV
  • making your own coffee
  • meal-prepping and taking your lunch to work
  • Walking/biking/carpooling or taking public transportation wherever possible
  • refinancing your debt to a lower interest rate (which could save you hundreds to thousands of dollars)
  • Need some more inspiration on ways to save money? Check out our handy guide on 20 ways to save money here.

 

Just doing one of these smaller habits (like taking your lunch at least once or twice a week) can put an easy $15 minimum into your savings account each month. I know it sounds absolutely insane to only save $15 a month, but just start. Soon you’ll find that the habit motivates you to not only keep going, but increase your efforts.

I think a lot of people dislike budgeting because they can be boring, they’ve had limited success sticking to it in past and they haven’t gone on a true deep-dive on their expenses.

Step 6: Freebies and Resources

Do you find budgets boring? Are you struggling to stick to yours? Do you want to design a budget for wealth building rather than just staying afloat?

To celebrate the upcoming launch of our new website we’re giving away our free e-book “Mastering your money to build wealth”. It has some exercises to help you get on track, a great formula for understanding how your income can be divided up to allow for wealth building and more.

If you would like a copy please submit your details here and simply write why you want a copy in the text box!

If you feel like you need help with your cash flow please don’t hesitate to call us on 02 9633 5530 and we can work with you to design a budget that will get you into wealth building mode!

 

Sacha Loutkovsky
sacha.l@orionfg.com.au
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