Personal Budget Part1 – How to create a budget & track your spending

If you’re like most Australian households, then you are more than likely living pay check to pay check along with that dreaded credit card debt! The very thought of creating a personal budget brings on a sinking feeling and a kind of guilt and shame…Yeah you not exactly what I mean! But don’t worry we are all the same though!

We all know we should have one, we all know that we need one and we all know the experts preach that we should have one!…. Then why do we put it off? Is it time? Is it not knowing where or what to do? Or is it the thought of being accountable? Accountable to ourselves, our partner, our friends and social lives? Or even our present and future selves? All these questions and thoughts that float within our self-conscious are the stories that we all tell ourselves….

But what if I told you it doesn’t have to take hours of your time up? That you can have that “Instagram” life? That it does not mean going without everything? That it’s relatively easy to set up and once established you can almost set and forget it?…. Sounds too good to be true? Sure is! But I’ll tell you it’s not going to be sexy and definitely contains traces of boring!  🙄

When it comes to your Personal Budget what come first? Well firstly you need to decide exactly what it is that you would like to achieve. Now this is a personal journey and only one that only you can decide! Some may like to simply pay off all their debt while others may like a new car or holiday? Others will be saving for their first home, others creating their wealth? Or even the thought of having a savings account so they simply don’t have to scrimp. Again only you can decide what you want to achieve…. Take a moment or two and decide “your why” and write it down – did you know that people that write their goals down have a higher chance of achieving them? Also the goals seem to be achieved much more easily.

So now that you know your “why” let’s begin the journey!

Working in the Financial Planning industry I have seen many budgeting templates out in the world! But I have to say most are very lack lustre! And don’t have either enough capture/input space or completely opposite they are too confusing. At this point I want to point out the information provided is general in nature and provided as a guide only! All information does not take your personal circumstances into consideration and again is just a guide for you. Also I have no affiliation to any of the sources mentioned.

Personal there are two tools that I like:

Personal Budget Template Number 1 – The extremely simple to use template

1/ Money Smart Budget by the federal government and ASIC (Australian Securities & Investments Commission). It’s extremely simple but can be limiting on what you can input. The Money Smart’s budget spreadsheet found here:

https://www.moneysmart.gov.au/tools-and-resources/calculators-and-apps/budget-planner

 Personal Budget Template Number 2 – The more in-depth and my favourite!! (I personally use this)

2/ AMP’s Budget Planner Spreadsheet found here:

https://www.amp.com.au/personal/tools-and-calculators

**Please note that AMP update the spreadsheet in regards to Salary/Tax calculations yearly. I would highly recommend downloading a new version yearly in-line with any budget and taxation updates.

Going forward I’ll be referring to and using the AMP Budget Planner Spreadsheet.

So let us begin your journey and I’ll step you through what will seem like a minefield of information. Don’t worry, I know your anxiety levels are high right now and it will feel really daunting but there really is no need to worry. The spreadsheet is made up different areas – it really is as simple as follow the bouncing ball and fill in the boxes  🙂

There are two types of information that you are going to need:

Income, in the form of Salary/Wages (can be pre-tax – I’ll show you where to go and calculate) and any other income. Whether it would be from a rental, shares (dividends) or any other investment income you may have.

Expenses, these are any out of pocket bills, mortgages/rent, clothing, travel/car, insurances etc. Anything that is paid from you Salary/Wage to run the business “You Inc.” in your day to day life.

Completing your Budget: Section A – Income

If you download the AMP Budget Spreadsheet straight from their website you do not need to worry about calculating your tax. The spreadsheet will automatically calculate your “take home/after tax” pay for you. **Note remember to re-download this every financial year in-line with any taxation changes**

If you are unsure or just want to double check what your annual salary/wages are, a great website is Pay Calculator by the Australian Taxation Office or ATO – link below:

https://www.paycalculator.com.au/

For our working example let’s take a retail store manager that is on $62,000 per annum with S.G (Super Guarantee) of 9.5% on top of salary. As per screenshot below, if Super is on top of your agreed salary do not click the box. If you are unsure how your Super has been negotiated then ask your employer, Payroll/HR Department. You can also refer to your payslip.

Personal Budgeting Part1 – How to create a budget and track your spending

We can now compare the ATO calculations (ATO will always be correct!) vs our budget spreadsheet. Below is the Salary input at $62,000 per annum:

Personal Budgeting Part1 – How to create a budget and track your spending

You can see that the tax at the bottom of the spreadsheet (next screenshot below) has been calculated correctly. Total tax paid is estimated at $12,867 (vs ATO calculations of $12,867). I will point out, at this stage that a budget is a guide! Complicated taxation is not included (unless in your skill set). E.g. adding back Franking Credits from Shares followed by deducting any rental property expense and adding depreciation etc. This I would urge you to leave to the experts like your accountant. Your personal budget is simply to track your spending habits and put a plan in place for you surplus cash flow.

Personal Budgeting Part1 – How to create a budget and track your spending

So go ahead and add you salary or wages (you can simply add your average pay if you are casual, even defaulting to weekly if that’s what you know/have going by your latest payslip). Don’t forget to add any other investment income or your partner’s income if completing a joint/household budget.

Completing your Budget: Section B – General Expenses

Here’s the thing I like about this particular spreadsheet – Like you quite often I don’t have a clue exactly what a particular item or bill is costing me (cue gasping breath – whhhattt I hear you say). E.g. you may have signed up for a subscription? Or you live in a unit that pays Strata Fees? All you know is that it is deducted weekly, month or quarterly. As long as you have identified that it is a regular expense you can go to your banking statements (now days you can scroll through the pages on your phone) and simply input that into the spreadsheet.

Personal Budgeting Part1 – How to create a budget and track your spending

Now here’s the kicker if you know you pay $86.68 per month for your gym membership and a couple of PT (Personal Training) sessions, then you simply go to the relevant section and enter the dollar amount in and change the “Frequency” drop down box to monthly. The spreadsheet will automatically calculate how much you spend yearly as per below:

Now you can repeat this process all the way down the subsections under General Expenses until you are at the end of the spreadsheet. Try to include as much as you can! Also when a particular tab is not suitable then why not use the “Other” column that is included. An example of this maybe that you may pay for Music lessons, so under Expenses part 5 – Educational Expenses you may pop in $22 per week? Again just an example.

Another method that a lot of experts talk about when it comes to tracking your expenses is: Keeping a note pad on you and write down every transaction you make. This will not only help you track your spending habits but also force you to take note of the type of spending that you are conducting. For example it may point out that you are spending too much on the kids at the checkout? (Damn those strategically placed $3 add ons!!), or even those coffees during the day.

I will add that as we move into a “cashless” society with PayWave and Cashless Transfers on our phones/watches there will really be no need to hand write our spending habits… what does a bank note look like again? For this reason I like referring to my transaction history. But only you can decide what method will work best for you  🙂

Let’s recap! When filling in your expenses you are going to need to know: A/ the amount B/ the frequency.

Where can you find this information?

1/ The number 1 source is your banking statements – both online or written statements. These are great as they can often show a pattern of your spending/expenditure.

2/ Bill’s such as utilities, car rego/insurance etc. Also found via you banking statements, or through paper statements.

All up your initial personal budget may take an hour or two to complete. Once established you should find that it will only take you minutes to tweak every so often. It really is a good idea to skim over once a month just to ensure you are on track. Like anything in life the more you put in the more you get out!

So now you’ve created your very own personalised budget let’s look at Personal Budgeting Part 2 – Putting you budget into use: Saving for a house deposit

 

Don’t forget to visit our “Tips & Blog” page for further information on all things Real Estate! And why not download the FREE “The Property Buyers Guide App” while you’re at it 😉

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