Back to Basics: Starting a Budget

photo credit: Jeff Keen

Paying off credit card debt, buying a house or investing in the sharemarket are all well and good but the very first step to financial security is to save money - and the best way to save money is by having a budget and sticking to it. A recent how-to guide has some good reminders about the basics of planning a budget and starting to save money, using these main steps:

1. Decide you need to save money. Sounds so simple, but some people don’t believe in savings (or so they tell themselves, perhaps because saving is too difficult).
2. Track your income and expenses. Write down (or store in budgeting software) every dollar that comes in and out for at least one month. Knowledge is power.
3. Analyze your expenses. Take note of where too much money is going and figure out where you can make some savings. For example, many people find that hundreds of dollars a month are going on eating out - replace a few of these meals with home-cooked ones and you’ll save heaps.
4. Find other ways to save by changing your behavior and asking around. Ask your credit card company for a lower rate (they sometimes say yes). Change habits like taking a taxi when you could use a bus with a little more forward planning.
5. Pay yourself first. Create your new budget with the important principle that your savings come first. Transfer some of your income into a special savings account every month, before you pay bills and other expenses.