Money and Life
(Financial Planning Association of Australia)
Learning how to budget is the first step on the road to financial security, and later, financial freedom. So if you struggle to stick to a budget, itâs worth trying a different approach. By building more flexibility into your plans, youâll master your budget in no time.
If 2020 has taught us anything about money, itâs the importance of financial security. With four-in-10 Aussies losing income due to the COVID-19 pandemic, many people have had to draw down on savings, or even reach into their superannuation to get by.
Managing your money in a planned way, starting with a budget, is an essential skill if you want to achieve financial security and the ability to weather unexpected events like COVID-19.
Yet many people struggle to stick to a budget, finding it too rigid. This is where a flexi-budget can come in handy.
Rachel OâConnor CFPÂŽ says there any many different methods of budgeting.
âIf youâve tried budgeting in the past and it didnât work, that doesnât mean youâre ânot good at budgetingâ or that you have âfailedâ,â Ms OâConnor says. âIt may just mean you need to try something different and experiment a bit.â
The benefit of a flexi-budget
Most of us still think of a budget as a spreadsheet with fixed line items â but it doesnât have to be so cut and dry.
âThings will always come up in life, and peopleâs lives and situations change over time,â Ms OâConnor says. âHaving some flexibility in your budget allows you to manage unexpected expenses.âÂ
Hereâs one way to create your flexi-budget for the coming year.Â
Start with the essentials
Like any budget, a flexi-budget starts with adding up all of your essential expenses.
Peter Foley CFPÂŽ says itâs vital to record your budget in writing. You can use a traditional spreadsheet, or a budgeting app if that works for you. Try the Money Smart budget planner.
âWhether itâs pen to paper or a spreadsheet, putting your numbers down gets them out of your head and in the open,â he says. âYouâll have more head space and you can show these numbers to someone (your spouse or financial planner) who can help you stay on track.â
Tip: Gather together your statements, bills and invoices from the last year or two. Try to find concrete examples of your costs for each different category. Then average these out to come up with an accurate record of what you actually spend. If you donât have bills to work from, you can estimate, just remember to review your costs against your bills at tax time and make sure your estimates are still accurate.
Read more: Essential apps for budgeting and saving money
Create flexible emergency funds
Once youâve taken care of the essentials, you can start building some flexibility into your budget by allocating funds to your emergency savings.
Having an emergency fund (or several) will help you cope when anything unexpected arises. As weâve all seen this year, unexpected costs can arise at any time and often require an immediate response. If youâre not prepared, it can throw your budget into chaos.
Tip: Create several âemergency fundsâ for different areas of your life. For example, you might create a fund for car and home repairs; one with at least three-monthsâ worth of living expenses in it; and another one for anything health related. You could even create an âemergency fundâ for entertainment, to use whenever an unexpected birthday presents or kidsâ schools needs crop up.
Give yourself a choice with the âone numberâ method
Now that youâve covered the essentials and your emergency funds, your flexi-budget really starts to come to life.
Calculate whatâs leftover â this is your âone numberâ. You can now decide from week to week, or month to month, what you want to allocate the remainder to.
âYour âone numberâ is the amount of money you have left over for spending each week, fortnight or month,â Ms OâConnor says. âFrom there, all you need to remember and stick to is the one number. As long as you stick to that one number it can all be spent in any way you like.â
The beauty of this method is the flexibility. Because youâre free to vary how you use the funds from month-to-month, it can feel less onerous and more engaging than traditional budgeting.
Tip: You get to decide how much youâd like to allocate to your goals, like paying off debt or saving and investing for the future. You could even start a holiday fund, have a weekend away or enjoy a splurge if thatâs what you decide.
Build in a budget for fun
Our final tip? Include a flexible âfunâ budget and reward yourself every now and then.
âOne rule I have for my clients is to ensure your budget includes allocations of funding towards something to look forward to in the short and long term,â Mr Foley says. âThis way youâll experience the success (joy) your budget brings rather than feeling like itâs a grind,â he says.
Ms OâConnor agrees.
âItâs important to set yourself mini-milestones and celebrate wins. This will help you stay motivated, stick to the plans you have created and achieve your goals.â