Author Katrina Shanks, CEO Financial Advice NZ
Article originally published in

This year’s government Budget has drawn my mind to personal/household budgets.

Budgets are a great planning tool that allow us to understand the state of our financial position – our income, our expenditure, and our must-haves and our like-to-haves.

When putting together a budget it’s ideal to start with your income and your basic needs, and build from there.

Then add in the nice-to-haves alongside your other priorities, such as savings and investing. In some instances, you may have money left over when you deduct your essentials from your income; in other instances, you may have a deficit, which means you will have to find some savings in your spending.

Either way, knowing your financial position is empowering.

However, budgeting to live pay to pay is not ideal (remember, you should be trying to build an emergency fund), while not being able to pay off your credit card every month, means you’re living beyond your means for that month at least, and if that continues, in the long-term that could lead you into a hole you’ll find it hard to climb out of.

Budgets work only if you stick to them. It’s okay to adjust your budget as you go along for income increases or more expenses, but the basics of your budget should really stay true to what you’re trying to achieve.

And budgets are for everyone – not the rich or the poor, or the old or the young – they’re a life-long discipline – just like healthy eating, staying fit, and continually learning.

There are so many tools out there that can help you with your budget, from banks, the Commission for Financial Capability, and its great Sorted website, and any number of financial adviser websites.

Although it has never been easier to spend money through the use of electronic banking via debit cards, credit cards and Afterpay, it has also never been easier to use the electronic options to your advantage.

In the old days, long before Eftpos and ATM machines came along, we used to go to the bank and withdraw money and separate the money into envelopes or tins for our different areas of expenditure, and pay your bills by putting a cheque in the mail. Imagine!

The up-side of that system was we felt and saw every dollar we earned and spent – literally – and that made us stop and think twice about the wisdom of spending. We were more conscious of where our money was going, as opposed to the ease of click here and collect there.

Today, many of us use online-only bank accounts to separate our expenditure into different accounts. We can have accounts for food, fixed costs, holidays, kids’ education, insurances … the list goes on. But as easy as it all is now, we do still need to be careful. We still need to take the time to work out how much to transfer into these accounts, be it weekly, fortnightly or monthly, and then stick to that plan. We still need to budget, and perhaps be even more diligent because it is easier to let our earnings slip through our hands.

Some people bring their budgets to life through image boards, where they display what they want to achieve. This can be very inspiring and can refocus you.

As I said earlier, budgets can be extremely empowering, especially when you see your savings balances increase. Now that many of us have banking apps it can be rewarding and encouraging to see savings and KiwiSaver balances growing every month.

Some people prefer something a little more complex, such as spreadsheets. There’s nothing better than a live spreadsheet to tell you exactly how you’re placed.

There are many ways of going about a budget and then sticking to it.

There’s a popular one in the United States at the moment called the 50-30-20 budget rule. Basically it’s about taking your after-tax income and allocating your spending 50% on your needs, 30% on your nice-to-haves, and 20% on your savings.

Of course, the hard part is keeping your needs to just 50%, which can be much easier said than done. You could tweak it a little, say 60-20-20, or whatever suits your situation. The main thing is to have a plan and to stick to it.

Having set your budget in a way that suits you, there are many tricks to help meet it. Here are just a few:

  • – Sleep on big purchases – take your time if it’s not something you need.
  • – Never spend more than you have – probably means being very careful with credit cards and delaying a spend till next week.
  • – If you do have a credit card, set a lower limit and pay more than the minimum amount.
  • – Give every dollar you earn a job, even if it’s in KiwiSaver.
  • – Go on a spending freeze from time to time – spend on necessities only for a week and see what’s left over. More for savings or that special treat?
  • – Plan your meals, do your grocery shopping online (to cut down on temptation) and stick to your list.
  • – Shop smart, shop around.
  • – Promise yourself that when you make your budget you reward yourself.

And yes, I have a budget. Mine isn’t so much a per-item budget, rather I have set amounts that have to go into certain accounts to ensure I meet my financial objectives. And yes, I’m much more disciplined when I’m accountable for every dollar, so having a financial adviser does make me hesitate when I see a great deal, a super sale, or that consumable item is screaming out for me to buy it.

Budgets are a lifelong discipline and will empower you to obtain your financial health, wealth and well-being.