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Book a FREE consultation
and receive your complimentary eBook

Get started with a free strategy consultation and receive a copy of the Good Fortune Guide – written by James McFall, Managing Director Yield FP and 2020 National Finalist Certified Financial Planner of the Year to help educate you on your Financial Plan.

Budget and Save – ‘Leaky Tap’ (Part 1)

Leaky Tap Part 1

If the tap you have leaks but your normal usage hasn’t changed, you’ll use more water overall, with the excess literally going down the drain. A good money management system is like getting your plumbing right. Learning how to effectively budget and save can provide you with a more optimal money management strategy.

By simply avoiding the waste, you can improve and potentially dramatically improve your overall saving capacity. Ensuring that you and your family are secure, just by creating a strategy around your money. All while having little or no impact on your lifestyle.

In this five-part blog series, we look at the main ways money leaks from your savings. Providing you with insight around how it can be fixed and then saved for your benefit. These are:

  1. Reduce your spending with a budget and save
  2. Legally reducing the tax that you pay
  3. Managing Debt Costs – By getting the structuring right
  4. Spending money that makes money
  5. Protecting your ability to earn income, with insurance

Reduce Your Spending with a Budget and Save More – Think Like a Business Owner:

How can I budget my money better? Such a common question that can help create better clarity and accountability for where your money is going, optimising your wealth creation journey. It also gives you the best opportunity to identify problems and prioritise what is important, and yet few people have a budget in place. Especially not one which is fluid and measurable.

Therefore, always begins with a budget. This will allow you to understand where your money is going and the opportunities that exist to improve the strategy you have in place to manage your finances. In doing so you fix the leaking tap as it were.

The Yield Financial Planning budget is structured like a business cash flow; if you think about it, a household budget is like a small business. You need to make the books balance, and the way a business does this is by recording what it earns and spends on a monthly and annual basis, then balances how they are tracking against their bank account.

budget calculator
Yield Financial Planning Budget Calculator

In this way, a budget should really be a monthly account of your income and expenses, not just an annualised figure, as most basic budgets are designed. In fact, you could get a whole lot more granular than this if you wanted to and look at it as regularly as daily, but we believe that like a business, monthly provides sufficient accountability and control.

One benefit of breaking your budget down to monthly, is that it reflects the fact that expenses are not incurred evenly throughout the year.

Therefore, you should expect that some months will be stronger saving months than others and some months you will likely even go backwards in your bank account.

Importantly though, as long as you have budgeted well and are monitoring it, you will not be disheartened to see your bank account fluctuating month to month. In fact, you will be completely assured that your budget is on track, because you can measure your progress against your bank account.

breakdown of the average persons expenditure

With this in mind, the starting point for you is to review and record your previous years actual expenses. This forms your budget foundation.

From here, a business will forecast the upcoming years income, and then budget for the things it prioritises as important in the coming year and this should be no different for you and your financial plan.

As a next step, we suggest that once you have laid out what you spend, break it up into what you ‘need’ and what you ‘want’.

wants vs needs budget and save

The things you ‘need’ you have identified you cannot do without, and the things you ‘want’ are discretionary. Understanding what they are allows you to prioritise your spending, to get the desired savings outcome you want, have budgeted for and is achievable.

Once your expenses are broken down this way, you can also review them to see if you are getting the best price.

For the items you have identified you need, start with the most expensive and work your way down. Can you get the same or equivalent for less? Adopting a more frugal outlook could fast track your savings exponentially and in turn fast track your goals.

This is a strategy that you should be implementing annually, as there are normally thousands of dollars you can save, without compromising on getting the items you’ve identified you need.

Utilities are an obvious one you can budget and save with. Compare your energy prices for example and if you can get the same for less, then switch. This saving then moves over to your want column and can either be prioritised for things that you want that year or can go directly into your savings for the future.

annual net savings budget and save

The next step is to try and look at the expenses you’ve identified that you need through a different lens. Is there something that you can accept as an equivalent, that may not be the same, but cheaper. In our house, an example of this was Fox Footy. We had Foxtel, primarily because we wanted the AFL, but it was expensive. We now have Kayo for AFL and stream two different TV channels. It is costing us less and we actually prefer the content we are getting as well.

Once you are done with your needs, then move on to your wants. Look at it through the same lens initially. Can you get the same or equivalent for less?

You’ve now reached the point where you can quantify what amount you want or need to save to achieve your desired outcomes in life. Ultimately, we are all working towards achieving a point in life where we can transition the need to work for money, to a point that we can rely on the wealth we’ve created. Ideally the wealth we accumulate through thoughtful planning can provide the income we need for our desired lifestyles and this comes from our savings.

Therefore, once you’ve got your budget to the point that you are comfortable there is no leakage due to paying too much, you can then review your budget to determine what your saving target is. This will then help you determine how much you are prepared to spend on your ‘wants’ in the upcoming year.

Year to year it will vary what these wants might look like. It could be a new couch or bed. A holiday or a new car. Effective budgeting, where you really balance out all of what is important to you in life, means you should be making good measured decisions on what really matters to you, rather than being impulsive and having to pay the price later. This mindset will prove to be a hinderance on both your short-term and long-term savings goals. Creating a roadblock in your financial plan and wealth creation journey if not appropriately dealt with.

It is not to say that you shouldn’t have what you want, quite the opposite actually. It is saying that if you have thought about it, you will be buying the things that really give you value and help you live your best life. Engaging with financial planner services can help guide you through this process and make sure that you’re on track to meet your financial goals and realise your full financial potential.

australian money

Grow Your Wealth: Budget and Save with Yield Financial Planning:

If you’d like to speak to us about how we can help you fix your leaky taps, budget and save and set up a financial plan for success, feel free to contact us today for a complimentary initial conversation.

See the professional standard we operate at The Financial Planners Association of Australia and start the conversation with Yield today.

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Important Note
Any information provided here is general advice only and does not consider your objectives, financial situation or needs. This information should not be taken as comprehensive and does not constitute legal or financial advice. You should seek legal, financial or other professional advice before relying on any content. Yield Financial Planning is not responsible to you or anyone else for any loss suffered in connection with the use of this information. Information is only current at the date initially published.

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Free Consultation
Cover page of the Good Fortune Guide

Free Consultation

Get started with a free strategy consultation and receive a copy of the Good Fortune Guide – written by James McFall, Managing Director Yield FP and 2020 National Finalist Certified Financial Planner of the Year to help educate you on your Financial Plan.