It's your budget, dummy!

Saving for a rainy day isn't difficult or boring - take a proactive approach and you'll soon achieve financial freedom.

Is your spending getting you down? Do your big bills take you by surprise? Is your saving pattern one step forward and two steps back? Yes? Well, you need to budget.

Budget's aren't just for the fiscally and frugally minded, they are for everyone who wants some control over their life.

''It isn't something that inspires people because they think it's going to be hard,'' says the chairwoman of Financial Counselling Australia, Carmel Franklin. ''In reality, it's about having more control.''

And budgeting is for everyone. Even if you're fortunate enough to have enough money to cover all your daily needs, that doesn't mean you shouldn't be drawing up a budget to target particular savings goals.


If you're new to budgeting, the first thing you need to do is work out exactly what you spend and on what.

One way you can do this is to keep a spending diary. You don't have to do it for the rest of your life, but if you do it at least for a week or a month it should give you an understanding of how you spend your money. You might think that by bringing your lunch to work you're not spending anything during the day - but two coffees, a mid-afternoon snack and a couple of beers after work add up.


Once you've worked out your daily incidentals, tally up your monthly and yearly costs.

Franklin says things such as electricity bills can often blindside people because they're only quarterly. ''Bills come in at different times,'' she says. ''For a lot of people, that's confusing … and people don't put aside for that.''

You may not know the exact day your quarterly electricity bill is going to come, but if you have worked out an annual budget you should have some idea.


Now you know where the money goes, you need to plan your budget. The biggest problem with budgets is that people aren't comprehensive enough in the items they budget for and they underestimate costs.

The budget tool on ASIC's MoneySmart website is a good start, and if you download the Excel you can individualise it.

A good rule of thumb is to add 10 per cent to every item you budget for. And, unfortunately, don't forget big surprise costs that you can't budget for, such as medical.

Medical can be an enormous expense, according to Franklin.

''Medical expenses can escalate quickly, and it's unusual for people to keep aside money [for that],'' she says.

It is important to have a pool of savings, if you can afford it, for times such as these.

Of course, the main aim of a budget is to ensure that your income is covering your spending.

Once you've managed to write down all your outgoings over a 12-month period, add them all up and then divide them by 12 if you are paid monthly, or 26 if you are paid fortnightly. If the result is less than your pay amount, then you have a problem.


If you're in the red you obviously need to do something about it. If you are in a situation where it's as simple as working more then you're lucky.

But you should also consider getting better deals on all your financial products and other services. Sometimes this can be as easy as talking to your financial institution. Often, if you tell it you are thinking of moving for a better deal, it may match the other product. If things are really bad and you may not be able to cover costs such as mortgage repayments for the month ahead, then the earlier you talk to your bank the better.

''I think it's better when people talk to their provider earlier,'' Franklin says. ''Probably because they feel badly … people often put off doing that.''

She also points out that all utility providers and most telecommunication companies have hardship provisions. ''[People] should contact the provider and say, 'I'm experiencing financial hardship,''' she says.

Banks and financial institutions will probably never be proactive in letting you know they have a product better suited to your needs, but they are quite good if you take the initiative and ask.


A credit card might seem like a convenient thing, but if you're using it to pay essential bills such as electricity and internet costs and only paying back the minimum each month, then you're paying a lot of unnecessary interest on those costs.

''Credit-card statements now have to tell you how long it will take you to pay it off if you pay the minimum monthly balance,'' Franklin says.

And this will probably surprise many people. It can take years to clear even a small credit card debt paying the minimum interest and it will cost you thousands in interest.

TRACK your day-to-day spending by recording what you spend over a week or a fortnight. Use MoneySmart's TrackMySpend app to do this.

COMPARE money in and money out over the period of a month. Put your income and expenses into MoneySmart's budget planner and let it do the calculations for you. For those who prefer pen and paper, download, print or order the free Managing Your Money booklet.

PRIORITISE where you want your money to go. Identify your needs versus wants, make savings (switch bills) and cuts (reduce the things you can live without), set savings goals and refine your budget.

ACT to make your money work for you. Mark coming big bills on your calendar. Put your savings into an account that is not accessible by ATM. Stay on track by checking your budget once a year and adjusting it if your finances change.