Managing your money can quickly feel overwhelming when you're busy living life. What do you do when you feel like you're stuck living from paycheque to paycheque? How do you plan for emergencies? How do you save up for the future? Isn't there a straightforward finance calculator that'll work everything out for me?
In this blog, we'll cover how to manage your money better, make it go further and protect your financial future.
Setting a budget is one of the most important things you'll do financially. Your budget is what you use to track your money, so you know you're saving enough for the future.
But why do I need a budget?
Budgets are good for more than just future planning — they can help you get the rewards you want now. Saving a little here and there and reducing your spending on things you don't need can help if you feel stuck between bills. It also means you leave room for fun stuff or more significant items, like your own house or car.
But how do I build a budget?
If you want to change where your money's going, step one is working out where it's going.
Start by writing down your purchases. Looking at your bank statements is a great way to track spending, so keep receipts on hand when paying for anything. You can always use a finance calculator to do the maths for you (but make sure it's a New Zealand one).
Just seeing things laid out in front of you can be eye-opening — spending $5 on a flat white every weekday means you're down $100 for coffees over a month.
How do I budget?
Start by adding up your income — that's all the money you've got coming in. Then, subtract all your expenses — that's everything you spend.
You'll either have money left over — a nice surplus — or discover that you're not bringing enough money in to cover your spending, which means you'll have a deficit.
Budgeting aims to make as much of a surplus as possible so that you've got more money to go towards your financial goals.
Start by keeping an eye on your expenses for a month or two, so you get a good idea of how much you need to cover the necessities, like your groceries, petrol bills, rent and utilities.
But budgets aren't just for covering the basics, and you want to factor in some money for fun too so that you can enjoy the little things in life. This is where an NZ finance calculator can help.
Once you've set a budget, it's time to put it into action. Track your expenses and adjust your spending so that you're on track to achieve your goals.
How do I budget?
You can use many different strategies — the choice all comes down to what you prefer and what works best for you.
A popular budgeting strategy is the '50-30-20' rule. That's where you spend 50% of your income on necessities, 20% on your savings and 30% on whatever you like.
That's not the only way you can break it down. Another option is a '60-20-10-10' set-up. Under this system, 60% of your money will go to your expenses, 20% will head to your savings, 10% goes to spontaneous purchases, and 10% will go into your long-term goals, like a holiday or a new car.
Putting some good rules in place means you don't have to worry in the long run because you'll know how much you've set aside for what reason. Most banks in New Zealand will even let you create different folders on your online account, which you can set up an account for any expense you like, making sure you stick to whatever budget is in that account.
Reasonable goals to have.
Be specific and realistic. Instead of telling yourself, "I want heaps of money in the future", set more straightforward goals with a particular timeframe and amount to save up on. This will make it easier for you to stick with and achieve those goals.
Some examples of a good goal might include:
- A 3-month emergency fund by the end of the year.
- Buying a house by the time you reach 35.
- Or paying off all your credit cards in the next nine months.
Make sure you check in with your goals after some time has passed. Hit one? Awesome! Time to relax and celebrate. Then go back to work and set a new financial plan to make it happen.
Get your debt sorted.
Are you tired of paying back loans every month? Here's some advice on tackling debt.
Firstly, you need to work out how much debt you have and what it's made from. Write down all the loans, cards and cars you owe any money.
Now it's time to break costs down. Check what the interest rate on each loan is. Looking out for high-interest debt is priority number one. That's because high-interest rates will affect you the most, as they add up over the long run. Try out different interest amounts on an online calculator to see.
Start by focusing on payday loans, store cards, credit cards and similar high-interest loans. It's helpful to focus on paying off one loan at a time while making sure you keep hitting the minimum payments for the others.
That way, you're sorting the debt that costs you the most while making sure the others don't spiral out of control at the same time. By reducing the debts with the highest interest rates, one at a time, you'll find paying it all off gets more manageable and more accessible.
Are loans a good idea if I need spare money now.
They can be.
A loan consists of the principal, the initial amount you borrowed plus any interest you pay (which will be a set percentage of your principal amount) and any extra fees.
To reiterate it’s principle (amount borrowed) + interest (% of principle) + extra fees.
If you're looking at getting a loan, you must make sure you know exactly what the overall cost is, so you can get an idea of what you'll be paying back.
You should also be aware that there's both good and bad debt. Keep in mind that your credit lender will be able to see the types of loans or credit amounts you take out. Taking out loans for things that help build up your future — like student loans or a mortgage — are usually examples of good debt to have. Taking out many payday loans with high-interest rates to fund a new holiday or redo your wardrobe is considered less desirable.
What if something terrible happens and I need a loan?
You never know when an emergency might happen. Your car could break down, your stovetop could stop working, or you could need to pay for sudden hospital bills. Setting up an emergency fund now could help prepare for those events.
Sudden emergencies aren't the only reason to have an emergency fund ready. Quick question — if you lost your job tomorrow, would you have enough to live off while looking for a new one?
If the answer is no, you should look at some other options. You could set aside 3-6 months of living expenses — that way, you'll be sorted while you look for a new role. Even applying for unemployment benefits could mean a 13-week stand-down period — and that's if everything goes to plan.
When it comes to organising your finance, nothing will be better than forming a budget. Clearly outlining all your outgoing costs can uncover bad habits and sometimes even leave you a little extra at the end of the week.
Start budgeting in ways to manage your debt. If you need to take out a loan, make sure you do try this equation first:
principle (amount borrowed) + interest (% of principle) + extra fees