12 Apr 2022
They say that money makes the world go around. Although this isn’t always entirely true, having a good budget can be the difference between meeting your financial goals or falling short of them. It’s often a big life event that leads someone to start a new budget, and revising your finances is always a step in the right direction. A solid spending budget along with a few simple tips can not only equip you with the tools to achieve your financial goals and dreams but also help to make life a wee bit easier. Whether you already have a savings target or you’re not sure where to start, read on to find out our over our top tips to help with your budgeting and finances. Let’s get started!
How to build a budget
The word ‘build’ can sometimes make the idea of building a budget seem like hard work. However, more often than not this isn’t the case. To make things simple, we’ve broken down our top tips to get you started on the road towards a better financial future.
1. Assess your current finances
The first thing to think about when starting your budget journey is to take stock of where you are now. Getting a clear picture of where your money sits can set you up with a strong foundation to then plan your spending budget. Here are some of the main points you may consider.
What are your expenses?
What is your current household income?
Do you have any secondary income?
Who relies on your income?
How much money do you spend on leisure activities?
Sometimes going through this process can be a little confronting. But don’t worry, getting a full scope of what your money is doing can help you to make educated changes going forward.
2. Understand your financial needs vs wants
As much as we often subconsciously blur the line that separates our financial needs and wants, there are big differences between the two. By categorising your expenses and goals into either a needs or wants category, you can consolidateyour budget and spend more effectively. Here are some examples of differences between needs and wants:
Things you ‘need’ to save for
These are hardline expenses that you usually need to prioritise first when budgeting. Life can sometimes offer up sudden changes out of nowhere, so it can be useful to recognise these examples as a financial need.
For a lot of us, there’s more than one person relying on our income to get by. Whether your earnings support young kids or ageing parents, Cigna Life Insurance can assist those you love should something ever happen to you. It’s always helpful to talk to an insurance adviser about the best options for your unique situation. They will ask you a range of questions, assess your needs to identify the best product options and they can also provide you with quotes.
It may seem a while away, but in reality, it’s never too early to start saving for retirement. As society makes more advances in medicine and healthier lifestyle changes, kiwis are living longer and longer. This means you may need a lot of money for a comfortable retirement. Regularly contributing to your Kiwisaver is a smart way to save for your twilight years, or read our guide on when you should start saving for retirement for other handy bits of advice.
Your mortgage or rent
For most, a mortgage is the biggest source of debt that you will ever have. Because of this, a mortgage is up there with one of the most important financial needs to save for. It also means it could be worth contemplating taking out insurance. In the event that something were to happen to you, it may be difficult for you to pay your mortgage. For those of you who rent, this is also usually a considerable chunk of your disposable income. Have you considered what would happen if you were unable to work due to a serious illness? How would you be able to cover your rent so you could recover? Cigna Mortgage Repayment Cover could offer you a monthly sum to help.
Things you ‘want’ to save for
Life is there to be lived. Although it’s important to prioritise your financial needs, your financial wants can also be included in your savings goals. A robust budget that ensures your wants are separate and secondary to your needs is a way you can have your cake and eat it too. Here are some examples of financial wants.
We all need a break from time to time; it’s what helps us to de-stress and come back to work fresh and focused. To help with your savings goal it’s a good idea to think about your income in relation to the cost of your holiday. Try to pick a holiday with less cost but still the same amount of time off. Lazing on the beach can be just as relaxing as lazing on a cruise ship deck!
A new car
Especially if you have a family or commute for work, a car is sometimes an important item to have. But to help achieve your savings goal, try to think about your car’s main purpose. When it comes time for a new car, perhaps you don’t need the latest model with heated leather seats.
There is an age-old saying that you should live within your means. This saying is particularly relevant to your lifestyle spending. It feels good to treat yourself to the odd meal out or concert ticket, but it can be helpful to keep yourself in check. Try to always remember what’s important and follow a spending budget.
3. Set your financial goals
Now that you have an understanding of what your needs and wants look like, let’s set some saving goals. Although it’s not often one size fits all, here are some common financial goals to set.
Long term financial goals
As we mentioned earlier, there are some long term expenses that you’ll need to consider. Below are common examples of financial goals where you’ll most likely need to play the long game:
Paying off your mortgage
Saving for retirement
Covering your insurance premiums
Saving for your child's future study
With these types of expenses, it’s worth noting that they may be ongoing into the distant future.
Short term financial goals
Having short term financial goals can be a great motivator, and some of your short term goals may be more attainable than you originally thought. Here are some examples of financial goals that you can work towards straight away:
Clearing your credit card debt
Paying off your student loan
Reducing your overdraft
Start smart investing
If you play your cards right, ticking these types of goals off can provide a great morale boost.
Emergency spending funds
As the name suggests, setting an emergency spending fund goal is important if there ever is an emergency. What you classify as an emergency is up to you. For some, an emergency fund could be for if your car needs urgent work, for others it may be set aside for unexpected expenses related to the house. An emergency fund is an important financial goal to offer peace of mind.
Nice to haves
Everyone deserves a treat occasionally; it’s important for our mental health. This means it’s good to make setting aside enough money to let your hair down one of your goals.
4. Make a savings plan
Now that you have strong goals to get you motivated, it’s time to start planning for your future savings. Throughout the process try to always keep your financial goals top of mind. Now that you’ve assessed your finances, you may want to split your income across your different financial goals. You’ll quickly see that with a bit of organising you can usually stretch your income further than you previously thought. It can be very helpful to use a budget worksheet as a template to lay your savings plan out.
Top budget tip
Talking to an independent financial adviser can be a smart way to organise your goals, make a plan, and then stick to it. Because they’re independent, you can also be sure that your adviser is putting you first. Some financial advisers can even advise on both your insurance and finances to make things easy.
5. Implement your new financial budget
You’ve talked the talk, now it’s time to walk the walk. With a solid foundation from accessing your finances, a clear understanding of your financial needs vs wants, goals to get you motivated, and a practical savings plan, you should now know what you need to make changes for a brighter future. When it comes to budgeting your finances, there is no time like the present. After a few weeks of following your savings plan, it’ll start to become second nature. Don’t forget, it can also help to make the most of other tools to help you budget and financial information hubs as well.
Want further financial advice?
One of the easiest ways to get your head around your finances and insurance is to talk to an Independent Financial Adviser. As well as advice on getting your financial ducks in a row, an adviser can help you to choose the right Income Cover Insurance for your life situation. This way, you’re loved ones will be looked after should anything ever happen to you. Read more on how to pick an insurance provider to get started.
- An update from David Haak – 16 June 2022
- Get to know you – Christine Laverty, National Strategic Alliances Manager
- First business development forum a hit with Advisers
- Cigna offers a helping hand to Kiwis starting out in their career
- The medical consent process just got even simpler
- Supporting your customers to start their career with Cigna by their side