Budgeting and saving are two very important habits that are crucial to ensuring long-term financial stability.

A budget guides you on how to use your money, while saving refers to putting money away that you’ll use to cover future purchases, emergencies or investments.

Budgeting and saving money may sound simple but, stats show that many Australians aren’t doing it. This failure is mainly as a result of the bad habit we have of spending on non-essentials.

Are you ready for a big change?

Budgeting is the first step in taking control of your money. It is so easy to budget-if you commit to it. You don’t require an accountant or special software to set up your budget and there are hundreds of free online resources and tools that you can use to get it done the right way.

Start by looking where you’re currently at and where you want to be in the future. List your goals. State the reasons you want to budget and save so that you can refer back to them when you hit a rough patch and are thinking about quitting.

Setting up your budget

Your budget should take your payday into account. If you get paid monthly, you should draw up a monthly budget and if you get paid weekly, you should draw up a weekly budget.

Step 1) Record your income

Write down the date you typically receive your income and the total. This may include wages, pension, government benefits or payments and income from investments. If you do not have a regular income, work out an average amount.

A record of your income must include:

  • Total sum received
  • Source
  • Frequency (weekly, fortnightly, monthly or yearly)

Step 2) Add all your expenses

Add your regular expenses. These are the essential items you need to pay for you to live. This includes fixed expenses, debts like your mortgage and car loans, and provision for unexpected expenses.

Step 3) Set your spending limits

The money you are left with after your outgoings and savings is your leisure or “spending money”. You can use the money for entertainment, eating out, and hobbies. You must keep track of this spending and plan for what you want to do with it carefully.

Why you should budget

Budgeting is important because it ensures that you always have enough money for the things you need and helps you achieve goals. When you follow a budget, you will stay out of debt and build up savings.

If you are currently in debt, it will get you out of it in no time. Budgeting helps you keep track of your spending. If you’re spending too much, it will help you balance your income and expenses.

Simple ways of saving money

The hardest thing about saving is that it’s difficult to get started. But when you find the courage to start, you’ll be able to save for all your short and long-term savings goals.

#1) Record your expenses

With any financial decision you want to make you must firstly figure out how much you can spend. Keep track of all your expenses including every coffee, take-away, household purchase, and cash tip you make. You can also download a spending tracker or budgeting app to help you do this.

#2) Budget for saving

Now that you have an idea of what you spend in a month, you can begin to organize your expenses into a workable budget. Your budget should clearly outline how your expenses measure up to your income, so you can plan your spending and limit overspending. It also includes expenses that occur regularly but, not every month, such as car maintenance.

#3) Look for ways to cut your spending

If you have high expenses that do not allow you to save as much as you’d like, it might be time to cut back. Look for non-essentials that you can spend less on, such as entertainment and dining out.

Here are some costs you might consider cutting out:

  • Movies and entertainment rather make use of resources such as community event listings to find free or low-cost events to reduce spending
  • Cancel all subscriptions and memberships you no longer use
  • Try eating out once less and take advantage of specials
  • Wait at least 3 days whenever you are tempted to make expensive, nonessential purchases

Set saving goals

You will only be able to save money when you have a goal in place. Start thinking about the things you want to save for, perhaps you are getting married, planning a vacation, or saving for retirement. Figure out how much money you will need for these goals and how long it might take you to save it.

#1) Make your priorities clear

Your goals are likely to affect your savings. Never forget long term goals. You should be clear on exactly where your priorities lie.

#2) Choose the right tools

When you are saving for short-term goals, you should ensure that you have the best account for the job. And the same applies to long-term goals. Since saving for long periods comes with different terms and conditions.

#3) Automate your savings

Having automatic savings means that the bank automatically transfers money between your checking and savings accounts. You can choose when and how often the bank should perform this.

#4) Sit back, relax, & watch your savings grow

Ensure you review and check your budget progress monthly. By doing so you will be motivating yourself to keep on saving and you’ll also be able to identify and fix problems quickly. Knowing and understanding how to save will help you find more ways to save and hit your goals faster.

The importance of saving

We save money so that we can cover emergencies and become financially secure and stable.

Reasons to save include:

  • Emergency cushion - you will need money to cover emergencies to avoid going into debt. These include a new roof for your house, out-of-pocket medical bills, or a sudden loss of income.
  • Retirement - before you retire from work, you should have savings or investments to take the place of the income you will cease to get from your job.
  • Average life expectancy - currently people live longer than before. Hence, they need more money to fund this extended life expectancy.
  • The volatility of social security - this was never intended to be a primary source of income and should be treated as a supplement to income.
  • Education - as new technology is introduced in schools, school fees for private and public education will continue to rise every year. Student loans are also very difficult to quality for.

Ways to ensure you stick to your budget & save

Budgeting and saving are not everyone’s forte but, if you’re brave enough to start, you should never quit, no matter how tough it gets.

  • Lock all the savings into a high-interest savings account - high interest accounts are designed to help you grow your savings faster.
  • Automate your savings - automating your saving helps because you do not get to see the money you are saving, which removes the temptation of using it.
  • Put yourself first - instead of having categories that cover all your expenses, focus on your savings goals.

Budget & save now

Budgeting and saving go hand in hand. To successfully save, you should draw up an accurate budget. When you fail to do this, your saving dream will turn out to be a disaster.

You’ll struggle to achieve your goals and create a stable future. Follow each step we’ve discussed and you’ll find yourself financially secure in no time!