Personal Budgeting - Why You Need a Personal Budget and the Best Australian App to Help You!
So, you're thinking about a personal budget? Excellent!
Budgeting is a great way to take control of your finances and reach your goals, whether it's buying a house, saving for a holiday, paying off your mortgage or just having a bit more cash to spare at the end of the month.
In this article we will cover everything you need to know about personal budgeting, from the different budgeting styles available through to the different tools you can use as well as the main budget expenses to plan for.
Popular Personal Budget Styles
With so many different budgeting styles out there, it can be hard to know where to start. Let's break down some of the most popular personal budget options.
Budget Style - 50/30/20
This is a simple and easy-to-follow budgeting method. It involves dividing your after-tax income into three categories:
50% for essential expenses like rent, groceries, and bills
30% for discretionary spending like eating out, entertainment, and clothes
20% for savings and debt repayment
Pros: It's straightforward and helps you prioritise your spending.
Cons: It can be restrictive, especially if your essential expenses are high.
Budget Style - Envelope Budgeting
This old-school method involves putting cash into envelopes for different spending categories. When the money is gone, you're done spending for that category until the next payday.
Pros: It's a visual and tangible way to track your spending and avoid overspending.
Cons: It can be inconvenient and time-consuming to manage cash.
Budget Style - Zero-Based Budgeting
With this method, you allocate every dollar of your income to a specific expense category. This means you have to plan for all your expenses in advance and avoid overspending.
Pros: It's a highly effective way to control your spending and save money.
Cons: It can be time-consuming and require a lot of planning.
Budget Style - Barefoot Investor
Based on the Barefoot Investor book where date nights and buckets are the way to go. You split you after-tax income into four different buckets as follows:
20% to Fire Extinguisher bucket to help build up an emergency fund (Mojo), pay down debt, save for a home deposit, get the banker off you back as you repay your mortgage and then start saving and building up you wealth (normally through shares, investment funds or properties).
10% to Smile bucket for those rewards that are just over the horizon and you need to save for, like that next holiday or new car.
10% to Splurge bucket that you get to spend guilt free on anything you want and is a really important way to keep some fun in your budget.
60% to Daily Living Expenses which pretty much covers everything else from rent, minimum repayments on debt, groceries, utilities, etc.
Pros: Fun and easy way to get started and it's a comprehensive approach that can help you achieve financial independence.
Cons: It can take time and discipline to build up your buffer and get out of debt.
Budget Style - Cash Flow Budgeting
This method focuses on tracking your income and expenses over time to identify patterns and areas where you can save money.
Pros: It's a flexible approach that can be tailored to your individual needs.
Cons: It can involve a lot of work if you don't have the right tools to automatically summarise it all up for you.
Budget Style - Mindful Spending
This approach involves being more intentional about your spending and considering the value you're getting from each purchase.
Pros: It can help you reduce impulse spending and make more satisfying purchases.
Cons: It requires self-awareness and discipline, which you normally get from one of the other budgeting styles.
How to Choose the Right Budgeting Style?
The best budgeting style for you will depend on your personality, lifestyle, and financial goals. Experiment with different methods to find one that works for you. And remember, budgeting is a journey, not a destination. It's about making informed decisions about your money and taking steps towards financial freedom.
Why You Need a Personal Budget
A personal budget is more than just a tool to track your income and expenses; it's a roadmap to financial success. By creating a budget, you gain a clear picture of your financial situation, allowing you to make informed decisions about how you spend and save your money.
A budget helps you set financial goals, prioritise your spending, and avoid debt. It's like having a GPS for your finances, guiding you towards financial stability and freedom.
We're all busier than ever these days, and it's easy to lose track of your spending and end up with more debt than you can handle. A personal budget can help you break free from this cycle by providing a structured approach to managing your money.
By tracking your income and expenses, you can identify areas where you can cut back and save more. This can help you pay off debt faster, build an emergency fund, and achieve your long-term financial goals.
Benefits of Sticking to a Personal Budget
#1 Budget Benefit: Reduced Stress
Knowing where your money is going can help you feel more in control of your finances, reducing stress and anxiety.
#2 Budget Benefit: Increased Savings
A budget helps you prioritise your spending and save money for important goals like a home, a car, or retirement.
#3 Budget Benefit: Improved Credit Score
By paying your bills on time and avoiding debt, you can improve your credit score, which can help you get better interest rates on loans and credit cards.
#4 Budget Benefit: Financial Security
A budget can help you build an emergency fund to cover unexpected expenses, giving you peace of mind and financial security.
#5 Budget Benefit: Achieving Goals
By setting financial goals and tracking your progress, you can stay motivated and make steady progress towards your dreams.
Risks of Not Having a Personal Budget
#1 Budget Risk: Overspending and Debt
Without a budget, it's easy to overspend and accumulate debt, which can have a negative impact on your financial health and well-being.
#2 Budget Risk: Financial Instability
Unexpected expenses can catch you off guard if you don't have an emergency fund, leading to financial instability and stress.
#3 Budget Risk: Missed Opportunities
Without a budget, you may miss out on opportunities to save and invest for the future, which can limit your financial growth.
#4 Budget Risk: Relationship Strain
Financial problems can put a strain on your relationships, both personal and professional.
#5 Budget Risk: Limited Financial Freedom
Without a budget, you may feel trapped by your finances and unable to make choices that align with your values and goals.
Daily Living Expenses and Your Personal Budget
Daily living expenses are recurring costs associated with your everyday life. These expenses can include food, transport, utilities and entertainment.
When creating a personal budget, it's essential to consider daily living expenses as they will make up the bulk of your expenses. These amounts can vary significantly depending on individual circumstances, but understanding these costs and budgeting for them effectively is crucial for achieving financial stability.
Here are some of the common daily living expenses and tips on how to budget for them:
Budget Expense: Groceries
Create a meal plan and stick to a grocery list to avoid impulse purchases and save money on food.
Budget Expense: Dining out
Set a monthly limit for dining out to prevent overspending.
Budget Expense: Transport
Calculate your transport costs, including fuel, public transport, or car payments and allocate funds accordingly.
Budget Expense: Utilities
Estimate your monthly utility bills (electricity, gas, water) and include them in your budget.
Budget Expense: Rent or mortgage
If you own or rent a home, ensure your budget includes your monthly payments.
Budget Expense: Insurance
Account for home insurance, car insurance, and any other insurance premiums in your budget.
Budget Expense: Clothing and personal care
Allocate funds for clothing, toiletries, and other personal care expenses.
Budget Expense: Entertainment
Set a budget for entertainment activities, such as movies, concerts, or hobbies.
Budget Expense: Subscriptions
Include subscriptions for services like streaming platforms, gym memberships, or online services in your budget.
Budget Expense: Appliance repairs
Budget for repairs or replacements of major appliances, such as your refrigerator, stove, or washing machine.
Budget Expense: Debt Repayment
If you have any debt make sure you pay the minimum amount owing on all debts each month so that you don't fall behind and impact your credit rating.
Budget Expense: Savings
Don't forget to allocate a portion of your income to savings for future goals, such as emergencies or investments.
Tools for Creating and Managing a Personal Budget
These days there is a big focus on Personal Budget App and Software (and don't get me wrong, they can be great); but first let's look at the pros and cons of the different budgeting tools available to you include spreadsheets, old fashioned pen and paper and "super cool" personal budget software.
Budget Spreadsheets
One of the most versatile tools for creating and managing a personal budget is a spreadsheet. This old favourite allows you to input your income, expenses, and savings goals into a table format. You can then use formulas to calculate your net income, savings rate, and other important metrics.
Budget Spreadsheets - Pros
Spreadsheets offer a high degree of flexibility and customisation, allowing you to tailor your budget to your specific needs. You can create different worksheets for different categories of expenses, such as housing, transportation, and entertainment. Additionally, spreadsheets can be easily shared with others, making it a great tool for couples or families.
Budget Spreadsheets - Cons
However, spreadsheets can also be time-consuming to set up and maintain. You need to have a basic understanding of spreadsheet software like Microsoft Excel or Google Sheets to create and use formulas effectively. Additionally, there's a risk of human error when entering data manually, which can lead to inaccuracies in your budget.
Budget Using Pen & Paper
A more traditional approach to budgeting involves using pen, paper, and journals. This method can be very effective for people who prefer a hands-on and tactile approach to managing their finances.
Budget Using Pen & Paper - Pros
By writing down your income and expenses in a journal, you can get a clear visual representation of your financial situation. This can help you identify areas where you can cut back and save more. Additionally, using a journal can be a therapeutic experience, allowing you to reflect on your spending habits and make positive changes.
Budget Using Pen & Paper - Cons
However, using pen, paper, and journals can also be time-consuming and messy. It can be difficult to track your spending accurately if you don't keep your journal up-to-date. Additionally, there's a risk of losing your journal or having it damaged, which could result in the loss of important financial information.
Personal Budget Software & Apps
Personal budget software is a specialised type of software designed to help you create and manage a personal budget. These apps and programs offer a variety of features, including income tracking, expense categorisation, budgeting tools, and financial goal setting.
Personal Budget Software - Pros
Some personal budget software also integrates with your bank accounts, allowing you to automatically import your transactions. This can save you time and reduce the risk of human error.
Personal budget software is generally easy to use and offers a variety of features to help you manage your finances effectively.
Personal Budget Software - Cons
However, some software may have a learning curve, and you may need to spend time customising it to your specific needs. Additionally, personal budget software may require a subscription fee, which can add to your expenses.
Top 10 Benefits of Personal Budget Software
To help you decide if learning a new personal budget software tool is worth it, let's dive into some of the ways personal budget software can help you.
Personal Budget App: Income Tracking
Accurately track your income from various sources, including salary, investments, and side hustles, to get a complete picture of your financial situation.
Personal Budget App: Expense Categorisation
Automatically categorise your expenses into different categories (e.g., housing, transportation, food) to easily identify areas where you can cut back and even better if it comes with pie charts and other visual tools
Personal Budget App: Spending Limits
Set spending limits for each category and track your progress towards your budget goals.
Personal Budget App: Financial Goal
Define your financial goals, such as saving for a down payment or retirement, and create a plan to achieve them. Even better, the most advanced app (like the
MoneyFormula Personal Budget App) will show you when you will achieve all of your goals using available savings, money put aside, minimum debt payments, etc. so you instantly get a picture of the future and how much you will save.
Personal Budget App: Debt Management
Track your debts, calculate interest payments, and create a debt repayment plan to become debt-free. The more advanced budget apps and software also let you try our different debt strategies in real-time like debt snowballing, avalanche and custom sort (something the Australian
MoneyFormula Personal Budget App does very well).
Personal Budget App: Savings Goals
Set aside money for specific savings goals, such as an emergency fund or vacation, and track your progress.
Personal Budget App: Investment Tracking
Monitor your investments, including stocks, bonds, and real estate, to stay on top of your financial growth.
Personal Budget App: Net Worth Calculation
Calculate your net worth by subtracting your liabilities from your assets to get a snapshot of your financial health.
Personal Budget App: Financial Reports
Generate detailed financial reports, such as income statements and balance sheets, to analyse your spending habits and identify areas for improvement.
Personal Budget App: Mortgage Planning
Work out when you will be debt free, discover how to cut years off of your loans, calculate the impact of interest rate rises and even check the bank is overcharging your interest.
Personal Budget Software vs. Personal Budget Apps: A Comparison
Both personal budget software and personal budget apps offer similar features to help you manage your finances. However, there are some key differences to consider when choosing between the two.
Budget Software and App Similarities
- Core features: Both types of software typically include features like income tracking, expense categorization, budgeting tools, and financial goal setting.
- Accessibility: Both can be accessed on various devices, including computers, tablets, and smartphones.
Budget Software and App Differences
- Interface: Personal budget software often has a more comprehensive interface with advanced features, while personal budget apps are typically designed for mobile use with a simpler interface.
- Functionality: Personal budget software may offer more advanced features, such as financial analysis tools and investment tracking, while personal budget apps may focus on basic budgeting and expense tracking.
- Cost: Personal budget software may have a higher upfront cost or require a subscription fee, while personal budget apps are often free or have a lower cost.
When to Use Budget Software or Budget App
- Personal Budget Software: If you need advanced features, such as financial analysis tools or investment tracking, or
if you prefer a more comprehensive interface, personal budget software may be the best choice.
- Personal Budget App: If you're looking for a simple and convenient way to track your spending and budget on the go, a personal budget app may be sufficient.
- Personal Budget Software & App: For the best of both worlds, you can consider using both personal budget software and a personal budget app. You can use the software for in-depth financial analysis and the app for quick and easy budgeting on the go.
Ultimately, the best choice for you will depend on your personal preferences and financial needs. Experiment with different options to find the budgeting tool that works best for you.
MoneyFormula App: Your All-in-One Personal Budget Tool
One example of a comprehensive personal budget tool that provides all functionality of both Software and App is the Australian made
MoneyFormula. Whether you prefer the convenience of your smartphone or the power of your desktop computer, MoneyFormula has you covered.
One of the most significant advantages of MoneyFormula is its seamless synchronization between the software and app. This means that any changes you make on one device will be instantly reflected on the other, ensuring that your financial data is always up-to-date and accessible.
Top Features and Benefits of MoneyFormula:
- Comprehensive Budgeting: MoneyFormula provides a robust set of tools for creating and managing your personal budget, including income tracking, expense categorization, budgeting tools, and financial goal setting.
- Full Financial Picture: Stay informed about your financial situation with real-time updates on your income, expenses, and net worth.
- Financial Planning: Set and track your financial goals, such as saving for a home or retirement, and create a personalized financial plan to achieve them.
- Debt Management: Effectively manage your debts by tracking payments, calculating interest, and creating a debt repayment plan.
- Investment Tracking: Monitor your investments, including stocks, bonds, and real estate, to stay on top of your financial growth.
- Financial Reports: Generate detailed financial reports, such as income statements and balance sheets, to analyze your spending habits and identify areas for improvement.
- Seamless Synchronization: Enjoy the convenience of accessing your financial data from any device, thanks to MoneyFormula's seamless synchronization between the software and app.
With MoneyFormula, you have a powerful and versatile tool to take control of your finances and achieve your financial goals. Whether you're a seasoned budgeter or just starting out, MoneyFormula can help you make informed decisions about your money and build a brighter financial future.
Personal Budget Software What Next?
PLEASE NOTE: The information in this article is general in nature. It does not take into account your personal objectives, financial situation or needs. Please speak to a qualified financial adviser if you need specific advice on your finances.
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