I was going through my old blog posts and found one that I never hit publish on a few years ago so I thought I so it now. I worked in an accounting office for nearly 13 years and worked in admin with accounts payable, accounts receivable and debtors etc so there are lots of numbers and I love working with numbers and budgets. I'm a Virgo and very organized and have most of my life had a budget for my finances. I had a paper system which was a little book for many years which I came across which is no longer available however the system set me up for life. It was simple, effective and fun and I put a few of the girls in the office onto this system and they loved it as well and felt in control of their money and even saved money for a house deposit because of this system.
Over time I transferred the system onto an excel spreadsheet which I've used for over 25 years and also shared it with a friend who had never done a budget before. Whether you have a lot of money or not, doing a budget is about knowledge knowing where your money is, knowing where you are allocating every $. Knowing what bills you pay monthly, quarterly, annually etc. It's about knowing how much money you have and what your money goals are, not necessarily about deprivation.
I wrote about Scott Pape's book The Barefoot Investor back in 2017 and there was 295 hold on this book at the library so it was very popular - I ended up buying it instead. The title doesn't do it justice because while it does talk about investing in shares it's the whole gamit of money from home loans, ring your insurance company to get a better price, what to say to your bank to get a better interest rate. Talks about date nights with your partner to talk about your money goals etc. It's a book every 18 year old needs to read. He also wrote one for families which is also amazing and every 10-18 year old needs to read this one including the parents. I wrote about that book in this blog post.
The idea of sinking funds or buckets is a title of a money goal to work towards. For example Bills, Mortgage, Car Expenses, Food, Petrol, Entertainment, Holiday, Savings, Investing, Pets, Christmas.
You may have your money in an offset account attached to your mortgage. If the mortgage is $500,000 and your offset account has $50,000 in it, then the bank would charge daily interest on $450,000.
That $50,000 sitting in your offset account [or any bank account] is made up of your money goals. Of that $50,000 you might [on paper] say $30,000 is savings, $10,000 is for a holiday and the other $10,000 is made up of other categories mentioned above ie Bills, Mortgage, Car Expenses, Food, Petrol, Entertainment, Investing, Pets, Christmas.
As an example you can have one account with $10,000 in it and feel like you have a lot of money. Out of that $10,000 you could have a $3,000 mortgage payment due, car rego $900, car repairs $650, food for the month could be $200 a week therefore another $800 there and so on and so on. You can decide what buckets or sinking funds you would like. If your car rego is $900 and you get paid monthly you would need to set aside $75 a month so when it's due you have the money sitting there rather than stressing where you are going to find $900 for that one bill.
I used to get paid monthly so my monthly bill split was the same every month so it was super easy. Say if you want to go on an holiday in a years time which will cost $5,000. Take $5,000 divided by 12 [monthly pay cycle] means you need to put $417 away each month toward that holiday goal. All the money sits in one account but you can see out of the $10,000 how much is in there for your holiday fund.
Budgets don't have to be restrictive, and in fact they are very liberating because you know where your money is, you know when bills are due and there is no more burying your head in the sand wondering how you are going to pay big bills.
I use excel however you can start with an exercise book and go from there. One big tip is to work out your Master Bills List for the year and then divide that figure by your pay cycles to work out what needs to be the first allocation when the pay comes in. You could keep a separate account for bills and transfer it on pay day so it's separate which is a good idea.
With the Master Bills list think of everything that gets paid in a year outside of mortgage and/or rent, petrol, food, entertainment. So that's things like monthly and annual subscriptions Netflix, Amazon, icloud storage as we all know everything is a subscription service now. Don't forget dentists, doctors, hair & beauty, presents [Birthdays, Mother's Day, Father's Day, Christmas] health & fitness, Driver's Licence, Passports these things come around when you least expect it work out when they are due. Rates or Body Corporate, Water, Electricity, House & Contents Insurance, Car Insurance, RACQ,
Do you know how to save $10,000 a year - it's as simple as earning $27.39 a day. Seems small when you look at the daily rate. You could sell something on FBMP, or buy not buying Friday night take away you save that $27.39 [if you are lucky take away is that small $$]
Everyone will have different money goals, someone might value spending money on gym memberships whereas someone might like designer handbags. Another person might like eating out at restaurants with friends, someone like myself likes camera gear. Everyone will have different money values and therefore you need to work out your own money values.
Anyway back to the original post if you have Netflix watch this series which LOVED it. There is so much to learn where people's money stories come from and how he helps them work out what money values they have or more importantly what they want for their future. I can highly recommend it.
How to Get Rich was released on Netflix are 8 episodes about 30 minutes each and Ramit Sethi takes people through a 6 week journey on where they are financially and teaches them how to manage their money so that they can design their rich life. There are families, singles and everyone has different priorities. He says that your rich life is not about being rich, however it's about you designing the sort of life you want whether that is working part time, paying off your loans and enjoying life. I have never hear of Ramit Sethi before however I loved the way he went about helping these people. There was no shaming them about their current financial situation and the fact that they had not been shown how to talk about money, manage money perhaps growing up. One couple had lots of money and were doing well however were getting into day trading [basically gambling] and thinking they could make a quick buck which they did initially until they didn't and then thinking they could make the money up which they couldn't. It's a great series and something to think about.
Let me know what you think if you end up watching this series.
