2021 was a weird year.

For the ol’ hip pocket, we had (more) lockdowns, job losses, a booming property market and online shopping addictions (who knew discounting was the new normal?!).

On the other hand, if you were in the sharemarket, you might have seen some serious gains. In fact, the ASX200 saw a total gain of 17%.

But in 2022, it’s time to turn a new leaf. New year, new me vibes. A NAB survey revealed 60% of us want to improve our finances…

The easiest way to improve our finances? Set a budget and some really clear goals. It’s easier than you think.

Budgeting: How to actually do it

Just like you make plans for your weekend antics, you can make a plan for your finances. Just set aside 30 minutes at the beginning to set yourself up right.

You can create your budget in any form you like - that could be on a piece of paper, an Excel spreadsheet or a financial management app. It doesn’t matter how you do it - as long as you have these four steps covered. 

1. Record your income 

You need to track all the money that you have coming in and record how often it comes in. 

This could be things like:

• Wages (make sure this is your after-tax income, because that is what is available to you)
• Interest (although this is super low right now)
• Gifts (helloooooo birthday cash)
• Commission
• Rent (if you have an investment property)
  

2. Add up your expenses

This could be things like:

• Rent or mortgage repayments
• Bills (think: water, gas, electricity, phone)
• Transport (petrol, public transport)
• Health (appointments, insurance)
• Subscriptions (Netflix, Stan, Disney+, Classpass)

It’s helpful to take a squiz at your bank statement or credit card to make sure you’ve included all your expenses. 

3. Normalise your income and expenses

This is sometimes the trickiest part. Your income and expenses often have different frequencies. Some payments may be made weekly, other payments might be monthly and others could be annually. 

In order to track your monthly budget, you’ll need to ‘normalise’ these expenses. That means if you’re tracking your monthly expenses, your $1,200 car insurance will be $100 per month.

4. Set a spending limit 

All the hard work is done now. At this point, you’ll be able to see how much money you have left after expenses.

The remainder is what you can spend on the fun things, like entertainment, eating out and hobbies (ie your ‘wants). By making a plan, it will help keep you within your spending limit.

5. Set your savings goal 

Your budget is the perfect way to work towards your savings goal. Once you’ve worked out how much money you ‘need’ and then ‘want’ to spend, you can make a plan for your savings or investments.

And THIS is where the magic happens. It’s where you can build up your emergency fund, invest in property, the sharemarket or even crypto.

Repeat after me: 2022 is gonna be gooooooood year!