Getting Started

So you’ve come to realise your money situation just isn’t up to scratch. But where do you start? You might be heavily in debt, living paycheck to paycheck, or just not meeting your savings goals.

I found the same thing a few years ago, I had just spent a year working in Sydney earning a good wage. I had no budget in place and ended up spending it all on inconsequential small items. When I returned to New Zealand to study I had only a few thousand to get me started. Had I followed my money a bit more closely I could have had ten thousand. Within 6 months I found myself with a maxed out overdraft (interest-free luckily) and very little cash in the bank. I desperately found myself a job and decided to get things on track. So where do you start – first you need to know where your money goes.

I often hear friends and family complaining about being short on money or struggling financially, yet when asked where they spend it, they come up blank. The first step to getting your bank balance back in black tracking your expenses. You need to know where your money goes before you can make changes to your lifestyle. The easiest way to do this is to grab your last 3 months of bank statements, if you’re short on time one month will do, and start going through and categorising expenses and adding them up.

Start with the big things first like rent or mortgage repayments, power, internet, insurance, etc. Then move on to the more discretionary items such as food out,  your daily flat white, or clothes. A good thing to do is enter these into a simple expense tracker, something like google sheets offers plenty of options. Once you’ve done this you should be able to get a pretty good grasp of where your money is going. Be meticulous every transaction needs to be categorised and added to the pile.

Now we have your past three months expenses lets grab an average, take the total amount of each category and add them together then divide by three to get your average. We will use this to work out a rough estimate of what you need to live on per year based on your current lifestyle. Times this average amount by 12 to get your yearly amount.

Setting up a spreadsheet to track all this is recommended and doesn’t take long.  You will quickly learn to love spreadsheets, they should be your best friend when it comes to managing your money. They are powerful and help give you a good grasp of whats going on. Now that you can actually see where you’re swiping your plastic, things might start to jump out.

Yearly budget
Your budget should look something like this.

Look at the yearly totals column, does anything seem absurd. Do you spend $1,200 a year in your daily flat white? If so, this isn’t necessarily a bad thing, and I’m not suggesting you cut down but at least it’s now part of your mentality. Next time you go to get one that number might just make you rethink.

This is the whole idea, bringing your spending into your consciousness to help you make more informed purchasing decisions.

The next step is to do the track your income, just like expenses go through and add up all your income sources a create a yearly total. Is this number smaller than your yearly expenses? If so your living outside your means and it’s time to make some changes. If not great you’ve got left over to save, pay down debt, or invest. However, scrutinise your expenses as you may find some easy savings hidden away.

If you’re looking to go pro with your budgeting and expense tracking check out something like Pocket Smith, a great app with has live bank feeds as well.

So now you’ve taken the first step to getting your finances under control. Remember when it comes to money knowledge is power. As you go forward spend 30 minutes each month adding your expenses to your expense tracker.

Just a couple of notes when calculating figures. If you have a weekly figure and want to work out the monthly figure times it by 4.33333, this accounts for the variance in month length. Otherwise, divide yearly figures by 52 to get weekly or 12 to get monthly.

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