If you’ve lost your income, after applying for Centrelink benefits the next piece of advice often is “do a budget”.
Plus doing a budget is the easy part. Sticking to it is the tricky part.
Whilst launching into a furious cost-cutting frenzy may save some money it can be emotionally exhausting, and not easily sustained in the face of temptation and stress.
To successfully control your money, you need a system that:
- Gives you a robust and personalised method for determining what is affordable
- Reduces your mental load by being easy to manage
- Helps your savings last
Follow these practical steps to set up a budgeting system you can stick to.
1. Use credit as a last resort not first
Credit often comes at a high cost that makes it harder to recover. So, first, apply the following steps before using credit as a last resort if your savings run out.
2. Pay yourself a steady wage
To give yourself more consistency and certainty:
- Separate your savings into a reservoir account rather than sloshing around with everyday spending.
- Direct all your income sources into this reservoir to act as a hub.
- Pay yourself a steady wage from this account, which will give you a sense of normality and be easier to manage.
3. Separately cover your commitments
When we’re worried about money one big part of the stress is the ability to pay ‘bills’ when they are due. This includes the automatic deductions and other essentials.
To relieve the stress and reduce your mental load I recommend ‘covering your commitments‘ in a separate account.
4. Compartmentalise impulses & indulgences
One of the great challenges in being money smart is resisting the abundant temptation of things to buy and do. Compartmentalising your accounts is one of the key strategies to help you resist temptation, by restricting the amount of money you have for impulsive, unplanned spending. This enables you to have guilt-free spending without going overboard.
5. Redefine affordable and trim the excess
Even if you have plenty of savings, it’s a good idea to review your spending to make your money last, especially in uncertain times.
6. Remove temptation
In step 4 I said that one of the great challenges is resisting the abundant temptation of things to buy and do. Removing temptation is easier than resisting temptation. Read some strategies here.
7. Track progress
In uncertain times it’s super-easy to become overwhelmed by possibilities and unknowns. One way to quieten the uncertainty is to know your position and where your money goes. Facts can be an antidote to scary imagination.
A free tracking app will help you both track and trim. Currently, I use Money Brilliant, which has a free plan.
Money coaching during a career transition