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025: Embracing budgeting
602 Plays5 years ago
This episode will help you understand what sort of budget you need, get it done more efficiently and actually stick to it!
This episode talks about the reasons you need a budget, the tools you can use to prepare a budget, and how to monitor your budget once you have set it up.
Mia and Dinah talk about the range of reasons why preparing a budget is important and how it can help you make better decisions about other areas of your life admin.
Dinah talks about how it is important to understand you past expenditure in order to set a realistic budget going forward. They talk about the various options to easily get this information including trying out tools within internet banking and apps that automatically extract data from your bank accounts.
They explore how you can set-up a budget based on your expected expenditure and your goals. They also talk about the reality of sticking to a budget and some of the hacks to make it easier to stay on track.
LIFE ADMIN LOW OF THE WEEK- Mia talks about how she needs to visit her bank to sort out access to one online banking for one of her bank accounts.
- Dinah talks about how she has created a spreadsheet of Christmas presents and already bought most of them using online shopping.
Pocketbook - budgeting app
Money Brilliant - budget app that also recommends product changes
The Barefoot Investor - popular money guide
SHAREPlease head to the Life Admin Life Hacks Facebook page to connect with listeners and share your thoughts, questions or suggestions.
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Transcript
Introduction to Accessible Education
00:00:00
Speaker
SLCC is Education Without Barriers. Here, you don't need test scores or a huge bank account, just a desire to make your best life happen. Getting a quality education isn't impossible. It's SLCC. Enroll at slcc.edu.
Podcast Introduction
00:00:15
Speaker
This is Life Admin Life Hacks, a podcast that gives you techniques, tips and tools to tackle your life admin more efficiently, to save your time, your money and improve your household harmony.
00:00:28
Speaker
I'm Dana Mo Roberts, an operations manager who's always had a budget even when there were no spreadsheets. I'm Mia Northrop, a researcher and writer and budgeting to me sounds like grown up homework.
Why is Budgeting Important?
00:00:42
Speaker
This episode will help you decide what sort of budget you need and how to get it done as efficiently as possible.
00:00:48
Speaker
Hello and welcome to Life Admin Life Hacks. Almost 70% of our survey respondents thought developing a budget was a life admin activity and while 40% of you have got this under control, another 60% either don't get it, feel out of control or worry that you are probably wasting money.
00:01:08
Speaker
Yeah, well, I do think having a budget is a really important thing. And I guess, you know, having a finance background probably comes quite naturally to me, but I do think there's a few reasons why. Often it's because you've got some sort of specific goal. And I know that you've talked about it in previous episodes, Mia, that when you go and apply for a home loan, you actually have to, and increasingly with all of the tighter regulations, they're really saying that you have to prepare quite a detailed budget.
00:01:35
Speaker
But it might also be because you want to save up for something in particular, like a house deposit or to go on a big holiday or even just as, you know, as we're starting to get a bit older, starting to plan for our retirement and to really think about how much we should be putting away each month to make that a happy time.
00:01:50
Speaker
I also think for some people it's to make sure they don't spend money that they don't have.
Handling Unexpected Expenses
00:01:55
Speaker
I certainly know I've got friends who probably often are living beyond their means and so developing a budget for them is really important. It can also help you be prepared for emergencies.
00:02:07
Speaker
I'm sure we've all had that situation where you have to unexpectedly fork out money for a car repair or for a pet emergency or a broken roof or something like that. So making sure that that won't cause you a lot of stress by having some money set aside.
Reviewing Past Expenditures
00:02:25
Speaker
And I think that also it can really shed light on bad spending habits. So if you don't actively look at what you're spending your money on, you can really kind of be unaware of how much money you're actually wasting. And I do think the other one, which is really relevant to life admin as a whole, is it can help you make decisions about
00:02:45
Speaker
the level of effort you might be willing to put into other life admin areas to save. You know, is it worth you spending, you know, a few hours looking for a better mobile phone plan? Well, understanding how much spare cash you've got can help make those decisions a bit easier. Yeah. So essentially a budget is a plan that outlines your estimated income and expenses over a period of time. That details what you expect to spend on certain things.
00:03:12
Speaker
A lot of the tools that are out there now to help you prepare budgets will suck in the data from your online banking and actually detail what you have been spending on things, which can be quite eye-opening. Yeah, definitely. So I think what we're going to try and talk about today is how you might develop a budget and then the options once you've set the budget.
00:03:34
Speaker
How do you actually monitor whether you're actually spending as you planned in the budget?
Effective Budgeting Tools and Strategies
00:03:39
Speaker
I have to say, as you mentioned before, we don't have a day to day budget. We prepared them when our financial planner has asked us to, because we're trying to identify how we can reach some kind of goal or we're applying for a bank product. But we don't leave day to day adhering to or aware of
00:03:59
Speaker
a budget. So this was a really interesting exercise for me. Yeah. So I think that the first step, which has always been the first step, I quite regularly redo our budget as a family is to really look back over a period of time. And I think you really should look back over a 12 month period because there are some expenditures that only happen once a year, like maybe your house rates or other things. And so I think you need to look at
00:04:24
Speaker
the whole 12 months to get the complete picture of what you spend and really think about what you've spent over the last 12 months and what you've earned or will you be earning going into the future because understanding that makes it really much easier to start to think about looking forward. And I've used the money tracker
00:04:44
Speaker
tool on the NAB website. So that bank website has an area where it shows you all of your expenses and it categorizes them automatically, not very usefully. I was actually shocked at how many
00:04:59
Speaker
Transactions there were from sort of major retailers like, you know, Kohl's or Kmart where I had allocated that transaction to a totally relevant category. Like, I don't know, household expenses or something when it was clearly groceries or it was clearly homewares or something else. So I kind of quickly abandoned Money Tracker, but it was sobering to see some of those figures.
00:05:24
Speaker
Yeah. And I was just like, whoa, is this right? And you dive into a category and weed out some of the incorrect ones. But for the, for the most part, it's like, okay, that level of transparency is really important.
00:05:38
Speaker
In the past I've always done it, like back in the day I used to do it manually by looking through all of my bills and then more recently by downloading bank statements and manually categorizing them. But as you say now Mia, don't need to do it, it's not that hard anymore so there's really no excuse to not do
Simplifying Budgeting
00:05:55
Speaker
it. There's a whole bunch of apps out there that will do that for you by linking your bank account to the app and information will be fed through and most of it will be automatically categorized
00:06:06
Speaker
And so you can quickly, you know, with minimal effort, really understand what you're spending your money on. Yeah. So after I discovered Money Tracker was not helpful, I downloaded Your Suggestion pocketbook and Money Brilliant, both of which I could just log into my online banking and they sucked in all the data and they were incredibly accurate and much more useful.
00:06:28
Speaker
So once you've got that data and you're looking and you're thinking, I'm spending way too much on X and you're getting a feel for what you're spending on Y and Z, what do you do then?
00:06:38
Speaker
So I think then you really need to set a budget. For me, I've always done it on a monthly basis because I know that some of those things are one off. So, you know, most things are the same every month, but other things might be quarterly or annually. And so for me, I've always found the spreadsheet to be the most useful tool to be able to do that and to map it out based on those very broad categories. I think
00:07:02
Speaker
the trick is to not get too granular because if you get too granular then it just takes forever and it's really not that useful anyway. And when you say most things are the same you know month to month or quarter to quarter are you just talking about bills? Yes. Are you talking about your discretionary spending too? Yeah pretty much discretionary spending as well like sort of in our budgets we've always had you know sort of a line item for you know clothing and a line item for eating out
00:07:30
Speaker
and a kind of a line item for just house maintenance or you know that kind of stuff without getting any more specific about whose clothes in the family they are or or anything like that as well as bills being you know just bundled together I've never bothered about budgeting specifically for gas electricity and water just you know every month roughly this is how much bills are going to be coming out okay so you have a look at what you have been spending
00:07:55
Speaker
And is that automatically just like, all right, well that's how much I'm putting aside now for each month? Or do you start to make adjustments because you look at them and you think, I am spending way too much money on clothes. I need to dial that back.
00:08:08
Speaker
Well, I think then that really comes back to why you're doing this budget in the first place, because if you're doing it to set a specific goal around, I actually really want to pay $10,000 off my home loan this year, or I really want to save $15,000 to go on a really expensive holiday, then you've actually then got to figure out, well, where are the trade-offs? If there isn't $15,000 left over, after you look at where your expenditure is, which buckets are discretionary, and are you willing to try and cut back on to be able to achieve that goal? Okay.
00:08:38
Speaker
So how do you decide, okay, I want to spend less on clothing. How do you come up with a more realistic figure? I think this is where you've really got to be realistic. You've got to know yourself and think about your lifestyle. If it's too restrictive and it's like a really complicated diet, then you're more likely to fail. So you might want to use rules of thumb, for example, like the barefoot investor.
00:09:00
Speaker
and he's got some percentages that you might want to aim for i think mate you've read that book yeah so the Barefoot Investor is a book written by Scott Pape that's been ridiculously popular over 1.6 million copies sold and he suggests that you divvy up your expenses or your spending into buckets so you might put aside 60% of your income to spend on daily expenses 20% as an emergency fund
00:09:27
Speaker
10% to splurge so that sort of stuff that you might money that you would put into a short term fee free transaction account so you can spend it on discretionary things optional things and then 10% smile he calls it and you might put that money into a long term savings high interest online savings account and that would be saving for that longer term goal like a holiday or paying off a chunk of car or house or you know something fabulous.
00:09:56
Speaker
And I like the idea of approaching it in those buckets because I think if I had to look at the line items and think category by category, like this much for bills, this much for clothing, this much for dining out, I just, I'd get bored of it. I don't enjoy it. So I'd find it tedious and I probably wouldn't be able to stick to it very well. But I do like the idea of just sort of having it run a bit more automatically where I can siphon off 10% for this 10% for that.
00:10:24
Speaker
20% for that. So I know that I'm covering off, you
Balancing Flexibility and Tracking
00:10:27
Speaker
know, the fun things, the long-term things that I'm saving for and I can know that I can just spend the rest on my daily living. Yeah. But I do think that he talks about before you kind of set up this system that you really need to understand whether you are your daily expenses or you know, that 60% whether it's enough. And so that's where going back and looking at what you're currently spending. It's a real reality check is can I actually,
00:10:51
Speaker
live off 60% of my income to pay the mortgage, to buy the groceries, to pay the bills, to run my car, all the things that are necessary to keep life ticking along. And he sort of suggests that if you can't, then you really need to make some sort of big change, like consider whether you can actually afford the house you're living in, you know, whether you can afford all of these bills you've got set up and maybe make some changes. So that's probably a pretty scary decision to make.
00:11:19
Speaker
what what kinds of changes have you had to make in the past where you've thought oh I'm spending way too much here I need to change my habits or rethink what I'm spending in this area. So the one area that I've noticed that whenever we've done this exercise has been lunches and coffees so when you actually add them all up and you know go through stages where we make our lunch and take it to work but really the you know it's very easy for all of a sudden lunches to cost
00:11:46
Speaker
12, 13, 14, 15, and then all of a sudden to be buying two coffees a day and all of a sudden, you know, you're spending $25 a day just to have coffee and lunch. And when you add that up over the year, that's just really becomes a lot of money. So I think that this exercise has always been helpful to kind of reset that thought about, you know, maybe actually we should take our lunch three days a week and buy it one day a week or, you know, that sort of thing.
00:12:12
Speaker
And there can be expenses that just sort of creep up on you. I know when we started watching Netflix and then we kind of felt like we'd exhausted Netflix and we're like, oh, let's get Stan. And then we get a Stan subscription and we watched the series on Stan that we loved, but then Game of Thrones came back. So it's like, all right, we have to subscribe to Foxtel. So we subscribed to that, but we didn't turn off Stan and we didn't turn off Netflix and we're not, you know, there's only so much TV you can watch.
00:12:40
Speaker
And suddenly we're spending, I don't know, $40, $50 a month on TV. So there can be some of those things that kind of accumulate. It's not until you stop and look at everything that you realize, oh, okay, I've got lost control here a little bit.
00:12:56
Speaker
And I do think that a lot of people do that with just internet shopping, generally. So when you look back and you add it all up, all of a sudden that, you know, $50 for this and $70 for that and a hundred dollars for that. And then when you add them up across a year, you suddenly get a bit of a reality check around how much you're spending on various things. And I think that's why, you know, the process of reflecting back on what you've spent your money over the last 12 months can really help reset. You know, you can start again, start afresh.
00:13:23
Speaker
So you did a bit of a deep dive into looking at some
Pros and Cons of Budgeting Apps
00:13:26
Speaker
of the apps. What did you discover? Yeah so I tried both of those. We talked about pocketbook and money brilliant and I did find them really good in terms of doing some of that hard work that I previously used to do manually in terms of understanding where my money was being spent and the fact that it syncs with the bank account just makes it so much better.
00:13:47
Speaker
And both of those apps also will sync with, you know, an unlimited number of bank accounts. So I was able to pull in my super. Yes. So I could pull in my super and money from multiple bank accounts. So it could give me a sort of overall financial picture and my net worth. And then I had to Google my net worth to see if I was going to have some kind of retirement that wasn't on the poverty line. That's a rabbit hole.
00:14:14
Speaker
But I do think that it's probably quite hard to maintain them in terms of, you know, really using it to stick to your goals unless, you know, because they're quite granular, the categories. It doesn't give you that bit of flexibility because for me, a lot of the discretionary expenses
00:14:30
Speaker
I might think, wow, we've had a couple of dinners out this month, so I'm really, I'm not going to splash out and buy a pair of shoes because I really feel like. So for me, that discretionary spending is kind of all in one big bucket rather than in little buckets. I don't want to have a specific budget for restaurants and a specific budget for shoes and a specific budget for whatever. And I think you need to know yourself to know that having a
00:14:54
Speaker
bucket and the boundary of that bucket if that's going to actually restrict you and curb your behavior. Or you might really need a specific shoe allowance or a specific dining out allowance. And what I liked about those apps is that it has, you know, how much you can safely spend. And as you start dipping into various categories, that little chart goes down and it will tell you, no, you've spent your shoe allowance.
00:15:19
Speaker
this week or month, no more shoes for you. And so it's really blatant. And I think some people would find that incredibly helpful to understand, oh, you know, I'm chipping away in this category. This is my last coffee for the day or week or whatever. Yeah, I think it is, it can be really good if, you know, if you are that person. I do think though, it can also be a trap. And I have noticed in business that when it comes to closer to the end of financial year, people often go on a bit of a spending spree because they've got money left in their budget.
00:15:49
Speaker
And so there's kind of this psychological trap you can fall into, which is say if you set yourself a $200 a month shoe allowance, you might feel like you need to spend $200 a month on shoes when actually you don't need any shoes. So I do think that the idea of grouping up the categories into bigger categories, probably more helpful than the quite granular categories.
00:16:13
Speaker
One of the apps also made recommendations about what banking products I should have. Once it sucked in the data and it asked me what kind of account is this? Is it a transaction? And because it knew what bank it was, it could say is it this product or this product?
00:16:29
Speaker
So it knew what my fees were, it knew what my interest rate was, and it actually made suggestions about, well, you've got two transaction products, you should actually have one, and you should have your bills coming out of this, which was useful. I get that trigger to perhaps go and do some comparison shopping or just contacting your bank and having a chat with them. So that was sort of an easy, a useful freebie that I wasn't expecting.
Automating Savings
00:16:54
Speaker
Yeah. So for me, I don't really think that personally using the apps to manage my budget would be the most effective. The thing that I find the most effective is actually diverting my salary based on the targets I've set for myself. So once I've set up my 12 month budget and I say, actually, this year we're going to try and save
00:17:14
Speaker
you know, X thousand every across the year of our home loan. I'm just going to change the way my salary gets paid so that a bit more of my salary goes directly into that home loan account. And that's kind of a forced saving in that it's already gone to that account.
00:17:31
Speaker
It's based on reality. I've looked at my lifestyle. I know that that's how much I should be able to save. And I've left myself a bit of a buffer in my transaction account so that if, you know, something unexpected comes, but it's really already happened. So my budgeting is forced in effectively by the transfer of money. Yeah, that's automated. That's wise. Yep. I guess that kind of, that is the overall, the best of kind of approach, isn't it? It's just like,
00:17:57
Speaker
put the money directly into if it's your daily bucket or your emergency or your splurge or your smile and then yeah you don't have to make frequent decisions because the decision making has already happened.
00:18:08
Speaker
Yeah, so he actually recommends setting up a bunch of transaction accounts. Quite a few banks now, even if you have an offset account for your mortgage, will allow you to have multiple offset accounts. So you can set up that offset account and his viewers have one account where all of your bills gets paid from and another, you know, an ATM card that's basically your splurge money and putting that in your wallet with a, you know, with a smile, you know, mark it on so you know that that's the card that you're allowed to use for any of your splurging.
Host's Personal Experiences and Anecdotes
00:18:37
Speaker
And once the money's no longer in there, that's it, no more splurging. And I think it's got a lot of merit, that idea. So I think what I'm going to go doing for it, it's been fun to use these apps.
00:18:49
Speaker
And I think I'll stick with money brilliant and let it just sit there in the background so when I want to dip in and check on things I can. But I'm not going to be, I mean you can set it up to notify you of all sorts of notifications if you want. I don't think I'll be using that way. But I'll definitely be having another look at what percentage our daily expenses is from our income and thinking about whether we need to make some adjustments in the proportions that we're sending into different bank accounts.
00:19:19
Speaker
And when do you think you might do it, man? Ah, good question, Diana. I don't know. We actually will, that kind of is a segue into my life admin law. I'll just go there. Let's do life admin laws. Okay. We have to go to the bank because our branch that had some of our bank accounts is closing and it's sort of triggered this conversation around the fact that we seem to have a proliferation of bank accounts. But when we log in online,
00:19:48
Speaker
We both don't have access to everything. Like we can't see the full picture. We have this weird transaction that we must have got set up in a branch that we can't control through our online banking. We can't find it to edit it or delete it. So we actually have to go into the bank.
00:20:05
Speaker
which feels like the biggest inconvenience, but more than an inconvenience, like just intrusion. I know it's pretty funny. Which is a funny state of affairs given that, you know, 10 years ago, the only way you could do your banking was to go into the bank. And I, I know I can't really recall the last time we had to go to the branch and make an appointment and I shouldn't be so negative that I'm dreading it, but I can't imagine it's going to be a delightful experience. I'm thinking it might be more on the tedious side, but,
00:20:34
Speaker
you know, we're going to do it and hopefully we'll get things clarified and having it simplified, I should say, simplified. Have you got a life admin hire, Dinah? I have.
00:20:44
Speaker
I got so inspired when I was listening back to our Christmas episode that I created a spreadsheet me. You'll be proud of me of all of the names and all the gift ideas and then sat down and did a bulk internet shopping. And I think I'm about 80% done. Wow. For the people haven't bought for I know what I'm going to get. I am well on my way. Amazing. So proud.
Conclusion and Call to Action
00:21:11
Speaker
Oh, it's been stuttering sitting here with the biggest grin on her face right now. It does feel great to just have that weight off your mind. It just felt, and it was effortless because I just, I was in the right mood. I just wrote the spreadsheet, did the shopping, done. Fun. I'm glad. Now you can just focus on whatever else is on the way. Oh, brilliant.
00:21:33
Speaker
Well done. I think I'm taking inspiration for your organized, crazy position. And I think after I visited the bank and sorted out my online banking, I will make some time to budget because then I know how much I can splurge. Is it a splurge or an expense? How much I can spend on Christmas shopping and I'll get started as well. Well, great Mayor. So I think our top hacks for budgeting are to
00:21:59
Speaker
Use some apps to help understand your current spending. To know yourself, be realistic about your lifestyle and what changes, if any, you're willing to make and what system of budgeting you'll actually stick to. And set up a system that will be easy for you to use. So consider the different bank account system or something that you'll be able to easily stick to.
00:22:21
Speaker
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