Thursday, 12 April 2012

The Importance of Keeping a Budget

One of the most important steps to becoming a successful investor is the ability to save, stick to a budget and invest wisely. It may seem like common sense but the ability to know where your money is coming from and where it is going will allow you to streamline your personal finances. A budget is not just about the simple matter of working out the cash inflow and outflow. You also need to decide which of your expenses are 'needs' and which are 'wants'. It's important to note that it is much easier to cut your costs on the 'wants' rather than the 'needs'.

The first step to analysing your finances is to get a clear picture of where you are out laying your money on a month-to-month basis. Tracking your outflow does not have to be a cumbersome process and can be done any number of ways, such as:

  • writing down any purchases greater than $10 (there are a number of mobile phone apps that can help you with this process)
  • making a simple spreadsheet to track expenses (NOTE: Send us an email if you would like to receive a free budget tracking spreadsheet)
  • checking your credit card and bank account statements
The best way to get a good idea of all of your expenses is to pay for everything with your credit card and then just checking the statement at the end of the month. Another important aspect of setting and keeping a budget is to make it flexible for when your circumstances change. We recommend that you review your budget every 6 months or after you make a major purchase such as a car, house or take a holiday.

There are many free tools online that help you set and keep a budget. We recommend that you try a few of these and don't feel that you have to follow them without exception. You a budget should be tailored to your individual circumstance and be made as complex or simple as you are comfortable with.

Having created your budget, you will be able to see exactly where your money is going and, more importantly, where you can invest it. Here are our top 5 tips for creating, tracking and keeping a budget:

  1. Start simple and add more details to your budget once you have a better understanding of your finances.
  2. Use the free tools available online
  3. Split your budget into categories such as; entertainment, food, insurance etc.
  4. Allocate 10% of your monthly income to an investment.
  5. Set some financial goals (monthly and yearly) so that you can have something to strive for.

If you would like a free copy of this spreadsheet, please click this link Spreadsheets 

If you have any other questions or comments, feel free to email us at 

Disclosure: The article is not to be taken as investment advice and the views expressed are opinions only.  Readers should seek advice from someone who claims to be qualified before considering allocating capital in any investment.

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