The road to Taking Control of your Finances starts with this…

The amazing thing about life, and truly the most important thing about being human, comes down to one thing I believe. It comes down to the hopes and dreams we all share for the future…

What does that do with taking control of your finances you ask?

What if I told you that every dream, every hope, every desire and want, comes down to how much money you have and how you control your finances!

Money is simply a tool, much like the sword/plough was a tool in the middle-ages, used to take/till so that dreams could come true.

One of the biggest dreams in Australia and the US is to own your own home, to be able to have something and call it yours, so that you can sleep soundly at night and protect your family.

Another, especially within Australia, is to travel and to see the world, to see more and experience more…

All of this costs money, and it always has, but now we live in a time where we can accrue more money in a year than any of our predecessors or ancestors could even dream of.

We live in a pretty golden era, that is for sure, but with all that money, we can also lose sight of what we truly want, giving in to entertainment and gluttony.

We are only human after all, and not everyone looks to the future all the time. We either live in three phases, the past, the now or the future and the majority of us, based on multiple studies, live mostly thinking about the now and the past. We do not look forward all too often, due to everyday stresses and the fast pace of Western society.

Which is why we need to create a system that can keep you on track and create security around your future.

That system we call a budget!

But, budgeting can have bad connotations, it leaves a sour taste in our mouth, because generally we think budgets are restrictive. But like a bad diet, if you have a too restrictive budget, you will never be able to keep to it.

We are only human after all…

Hence, to set yourself up for success, the best way to start a budget is to look back into the past. Let me share with you a simple system I have created to budget, which takes a bit of effort and time to set up, but once it is done, you can set and forget or you can spend 10 minutes a week/fortnight if you want a bit more control completing it.

Step 1: Write down your Goals/Dreams

You need a reason to create a budget in the first place, if you want to achieve something, you need to write it down, speak to your partner about it and truly understand what you want.

Of course, this is easier said than done and I will be writing a later blog this year on how to ask the right questions to understand what you want and where you want to go.

Step 2: Look to the past and learn from it!

The scariest part about a budget is probably learning something about yourself. I realised pretty early on, after doing my first proper tax return, that I was a bit of a spender. I spent $10,000 in one year on eating out and take-away…

Now there is nothing wrong with that, except I had only earned $60,000 for the year, meaning I had spent almost 17% of my income on eating out!

I was amazed and felt a bit guilty, but I knew that I would never let my spending habits take control of me again.

It may be scary and you may not like what you find hidden in your bank statements, because it truly does reflect a little bit about yourself, but if you can get through that, you will also learn why a budget is really important too, as I did.

Therefore, we need to print out 3-6 months worth of bank statements and, using an excel spreadsheet, fill out what you have spent over the last 3-6 months.

To attain the excel spreadsheet I use, simply fill out the form below and put in the Subject: I want to Take Control of my Finances!

Once you have done this, you have done all the leg work needed, but it is not the hardest part, not by far.

Step 3: Work out how much your goal/dream is going to cost

Understanding where you want to be, now that you know where you are currently and where you have been in the past is paramount.

Therefore, a bit of research is generally needed, depending on what your goal or dream is.

Want to save a deposit and own a home, you need to understand how much you want to spend, you need to know what your partner is willing to contribute and how you will work together to do so. That is one example, but this is the fun part, talking about your goals and dreams with a partner or friend, researching and truly working towards what you want!

Step 4: Once you have a figure, you can work backwards.
Let’s say that you want to own a home and you want to spend the median house price in a suburb you want to live in, which comes to $700,000.

You want to have at least a 15-20% deposit, 20% means you will not need to pay lenders mortgage insurance, which is dead money anyhow.

Therefore, lets use the 20% deposit. Simple math says that $700,000 x 0.2 = $140,000

If you already have $20,000 in savings, you know that you will need to save $120,000.

Step 5: The final step, how much can you save and how quickly can you save it?

If you earn $80,000 per annum and your partner earns $60,000 per annum, after tax for simplicity sake.

You will need to look at your budget and work out, how much you are saving currently, let’s say currently it is not weekly or fortnightly and you just put money in the savings account when you can. Based on the 6 months, you have saved $10,000.

That means that you will need to save for 5 more years, before you can even think about going for a house. But you want to do it quicker, this is where things get hard and difficult conversations need to be had.

Rather than say you can be in your own home in five years, lets make it 2 years. That is $50,000 per annum, or $962 per week.

Your main living expenses come to $1,200 per week based on the budget you completed earlier, but you generally spend at least $1,108 per week on incidental things.

Hence why you have only been saving about $385 per week. ($10,000/26 weeks = $385)

Between you and your partner, you need to make up $577 per week in savings, which means you need to stop going out as much or going on less dates and sacrificing a little bit in the short term.

But that means you can still spend $531 per week on discretionary things, like eating out, dates, shopping etc.

Once you have worked out the figure you need, you need to simply create a savings account purely for that goal, whether that is a house as used in the example above, or for any other goal/dream and each week you take out that $962 out of your pay and put it into savings.

I would also highly suggest that you put the $531 per week in a different transaction account, with a new card, so that way you can split up your discretionary spending like eating out with your non-discretionary spending like bills and fuel.

And that is it, that is how you budget, of course it is a bit of time and effort. But if you truly want to take control of your finances and you truly want to achieve the dreams/goals in your life, it requires a little bit of time and effort.

Once you have done it though, it is so easy to either set and forget through creating a recurring transfer in your bank account or to sit down and do the transfers yourself once a week or fortnight depending on when you get paid.

Budgeting does not have to be about restricting yourself either, because truly you have control of when you want to achieve your goals/dreams by. Therefore, if you want to live it up a bit more, you just don’t save as quickly as the above example.

It all comes down to what you want and when you want it by!

Until next time,

Take Back Control