Budgeting basics

Budgeting has to be one of the least appealing words in our vocabulary. A term synonymous with the dullest of politicians, it immediately conjures up visions of frugality, conservatism and denial.

But don’t be deterred: budgeting doesn’t have to be painful, and done the right way it will make life easier, and ultimately create more wealth for you.

Whether you’re striving to save for a deposit, or you’re struggling to make repayments on your mortgage, a well structured budget can have a major impact on helping you achieve your financial goals.

So what exactly is a budget and more importantly, why start one?

A budget is simply a spending framework for you to follow on a daily, weekly and monthly basis.

Your budget will help determine what you need to spend on your regular commitments as well as establishing how much discretionary spending you have available – taking into consideration your other financial goals.

All very good in theory, but how do you go about setting – and sticking to – your budget?

The golden rule when budgeting is to make it realistic, effective and achievable. Drive yourself too hard and you’re sure to come unstuck and end up abandoning it; go too easy and you’ll never see any results.

If you have a long-term goal that’s going to take a couple of years to achieve, you’re going to find it hard to stay focused. To keep yourself motivated set yourself milestones along the way and reward yourself for your diligence with each goal met; this will also give you the chance to review the effectiveness of your budget.

If you’ve stuck to your guns, look at giving yourself a small blow-out every three months or so. That could be a night out, a little retail therapy or a weekend away – as long as it doesn’t put too big a dent in your hard earned savings.

It’s also important to look at where you stash those extra bucks as they build up each month.

If you’ve never saved before, you’ll quickly find that seeing your bank balance grow is very rewarding. But rather than leaving your cash in a low interest current account, look at tucking it away in a high interest savings account or term deposit.

You’ll not only see your savings grow faster with the extra interest, you’ll also put your cash a little further beyond temptation’s way. Shop around for deposit accounts because there may be a difference of a full percentage point in interest rates.