Finance Advice

MAY 21, 2018

Saving for a home: how to create an easy to follow budget

Unless you are running your own very successful venture capitalist firm, and money is no object, then it is more than likely that you will need to start some form of a budget to help you in saving for a home. Mention budgeting in a sentence and most eyelids start to droop, which is completely understandable. Most people would prefer to have a prostate exam then sit down and work out their incomings vs. outgoings. Nevertheless, if you really want to speed up your ability to save for a home, budgeting is the only way of effectively doing this.

According to the Australian Bureau of Statistics, the average household is estimated to have spent $74, 301 on general household living costs in 2016. These include groceries, car expenses, entertainment, medical expenses, fashion and electrics, personal care, pet care etc. All the things that go into running your daily life.

For one demographic looking to buy their first home, young professionals with kids, housing, transport and groceries make up the bulk of their expenses, which indicates that Australians are well-aware of what needs to be prioritized in their spending.

What a budget can help you to do is find areas where you can save an extra $2,000 a year (cutting out coffee), as well as having a visual reference of where your money is going.

What does a good budget look like?

A budget does not have to mean creating multiple Excel spread sheets, nor incorporating the sort of built-in calculations to your Excel document that would make Albert Einstein throw up his hands in confusion.

The first thing to do is use our Budget Calculator to simply input your weekly, fortnightly and monthly expenses. These include things like utilities, food expenses, rent, as well as your income from a job, shares, etc. The Budget Calculator is a simple tool intended to give you a clear visual indication of how your money is working (or not working) for you.

Consider the following example of the Budget Calculator’s results:


What, you don’t have a spare $120 million?


The above is an example of how our Budget Tool (in this case for a billionaire…), can show you whether the money that is going out is affecting your savings goals. For the above example, this individual is earning an annual $120 million, and only has $52,080 outgoings, so it’s safe to say their savings measures are just fine, and they don’t need to give up coffee.

The Budget Tool provides an exhaustive list of your incomings and outgoings so that you don’t have to spend too long on Excel. With a solid understanding of where your money is going, you can highlight those areas that are sapping your ability to save for a home. This may be as large as your rent (requiring you to find alternatives) all the way down to your daily expenses.

How to implement your budget

Now that the above case study knows that their $120 million per year is giving them plenty of breathing room compared to their total expenses (lucky for some), they can then start to implement the reality of their budget in regards to their every day expenses.

If you have identified that you could save money by reducing your food expenses, you can then readjust the Budget Calculator to account for this, and then check it before you go shopping for food. As long as you keep within that number,  you know that you have satisfied the requirements of your budget.

You ideally want to play with the Budget Calculator to a point where your spending expectations are realistic (you set aside enough money for everyday expenses, holidays, medical expenses etc.), and then try to live by this budget. Making these adjustments should provide extra savings that you can either put in a higher interest savings account, put towards stock or term deposit investments, or service existing debts.

If you are struggling to keep the outgoings lower than your income, consider the following steps in finding financial freedom from your debts, as well as seeking help from a financial counsellor.

Remember to revisit the Budget Calculator at the three month point, as well as at six months and then after a year. There will undoubtedly be changes to your outgoings and possibly to your income, so recalculating your budget may highlight new areas where you have more money with which to play and potentially put towards saving for a home.


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