After a year of higher interest rates and inflation-triggered cost of living pain, more than half of Australians have a goal to save more money in 2024.
Additionally, 34 per cent want to spend less money and 21 per cent plan to reduce expenses, according to a Finder survey of more than 1000 adults.
But “saving more money” or “spending less” are tricky goals to pull off without an actual strategy to get there, the experts say.
Here's how to build a budget that works.
Track your spending
The first step is to actually figure out where your money is going. There are a couple of ways to do this. Suzanne Haddan, managing director of wealth advisor BFG, likes the free Moneysmart budget calculator. Using this tool involves sifting through your transaction history and working out how much of your income is going towards groceries, dining out, bills, subscriptions and memberships, children's items and all other costs.
Plug that into the calculator, and be careful not to underestimate your expenses. Along the way, if you spot zombie subscriptions or memberships you're not using, now’s the time to take the easy win and cancel the subscription.
Set your goals
Budgets fail for two main reasons: they’re too tight because their makers’ fudge the numbers when calculating expenses; or the would-be saver overestimates their ability to stick to the plan, says Haddan.
If it's the latter, it's usually an issue with the goals. You'll need a mix of short- medium- and long- term goals, to stay engaged.
“Don't have all of your goals along the lines of, ‘I'm saving for a home deposit in five years’,” she says. “While that's a great goal, you also need to have a goal like, ‘I'm going to put money aside to go to New Zealand in one year’ or ‘I'm going to put money aside for a new dress for an engagement party’.”
Think about what you're willing to give up to get there, says founder of the My Millennial Money podcast and former financial advisor Glen James. “It's really hard to tell someone, ‘Just save 20 per cent of your income’.”
It's more powerful to look at your total expenses, and figure out the costs you can cut, to divert cash to the more important things.
Think about your strategy
Now that you have your idea of where you're spending your money, how you'd like to shift or reduce that, it's time to strategise.
James has a four-pronged spending plan. He knows that he's a spender so for his plan to work, he needs to put distance between himself and his money.
He has his salary paid into one account that's earmarked for bills(money set aside for gifts also goes into this account). From there, he’ll transfer money into another account for his emergency savings, and another for his long-term goals all of these are with the one bank.
Finally, he'll transfer a certain amount into another account with a different bank for weekly or monthly discretionary spending - fun money. He also has a rule where he won't spend more than 1 per cent of his income in one go, without sleeping on it, to try to curb impulse purchases.
Ashley Bishop of What If Advice + Accounting says it really depends on what works for you, but personally uses this four bucket strategy.
Be wary of spending plans that are too complex, he says. He reckons most people don't need more than five buckets. And while for some people, it's good to account for every dollar of every cycle with a spreadsheet, most people are simply not going to keep up with this after a couple of months.
“Simplicity is sustainable. The simpler people keep their budget planning or cash-flow management, the easier it is to maintain,” says Bishop.
Tweak
Once you’ve started, try to stick to it, but if you falter “don't whip yourself”, says Haddan. Just try to figure out what the trigger for the slip-up was. Maybe you were out for dinner with your friends and decided to shout a round of cocktails.
If that's the case, perhaps you need to factor some generosity into your budget. Or you might need to think about what you can do to rein in your spending when with your mates, such as going to cheaper restaurants or sticking to wine.
Think outside the box
Not keen on something so structured, but still keen to cut back?
Another, more low-key approach, says James, is to look at the last year's expenses and identify three or four things that didn't work. Then just focus on nailing those four things. For example, were you surprised by car rego last year? Plan to have that money put aside this year.
Emma Edwards, founder of The Broke Generation financial literacy website, also likes the “spending snowball” method.
“If sitting down and creating a budget and sticking to it feels overwhelming, instead you can start by reviewing your financial behaviour at the end of each month, and setting up a new plan each time based on what you uncovered.”
Take a look at the last month's expenditure and look at things that could have been cut. Tally up that “opportunity number”, and that's the goal for next month - not indulging in that unnecessary spending.
It also doesn't need to be all or nothing, all the time. Edwards suggests flexible budgeting for those who struggle with moderation.
“Basically, you set two budgets: one that's very tight and lean; and the other is a bit more relaxed. The idea is you alternate the budgets to keep yourself interested.”
“For example, one week a month you live on a very lean budget - stay home, meal prep simple meals, and cut spending right back to send the most you can to savings. Then, the rest of the month you have a bit more leeway, so you don't have to be as frugal.”
“As an example, say you want to save $400 a month. If you stash $250 the first week by cutting your spending right back and living very frugally, the other three weeks you only need to save $50, and you can be much less frugal.”