Budgeting 101 - what you need to get started
PLEASE NOTE: This is not financial advice. The information in this blog post is for educational purposes only.
Going through a divorce or overcoming financial abuse can be emotionally and financially draining. However, taking control of your finances is a crucial step toward rebuilding your life and securing your future.
Budgeting is something that we’re all aware of - and know that we probably should be doing. But what you may not realise is that while it is basic, it’s also actually a powerful tool that can help you regain financial stability and independence.
In this blog post, we'll walk through the essential steps of budgeting, making it simple and accessible even if you've never done it before, plus I’ve also got a free printable budget spreadsheet that you can download to get started.
Why do we need to budget?
Budgeting is the cornerstone of financial success, and getting ‘good’ with money starts here. While it sounds boring, hopefully you’ll end up like me and enjoy doing your weekly or monthly budget as you watch how those key decisions in where you’re allocating your money start getting you closer to your financial goals.
I know that you’re probably keen to just get to the good stuff and learn how to budget, but I just wanted to outline why budgeting can be so helpful for women after divorce and recovery from financial abuse:
Regaining Financial Independence: Divorce or escaping financial abuse often leaves women in a vulnerable position, both emotionally and financially. Budgeting empowers us to regain control over our finances, allowing us to chart our own path toward independence and security.
Clarifying our Financial Situation: Budgeting provides clarity about our financial situation. It helps us understand exactly how much money we have, where it's coming from, and where it's going. This knowledge is essential for making informed decisions and planning for the future.
Setting Financial Goals: Budgeting enables us to set clear financial goals based on our unique circumstances and aspirations. Whether it's building an emergency fund, paying off debt, saving for retirement, or achieving other milestones, a budget serves as a roadmap to turn these goals into reality.
Managing Resources Efficiently: Divorce or financial abuse may result in limited financial resources. Budgeting allows us to make the most of what we have by prioritising essential expenses, cutting unnecessary spending, and maximising savings. It's about doing more with less and optimising every dollar.
Breaking the Cycle of Financial Dependency: For women who have been financially dependent on a partner or subjected to financial abuse, budgeting offers a path to independence and self-sufficiency. By taking control of our finances and making informed financial decisions, we can break free from the cycle of dependency and reclaim our autonomy.
Protecting Against Future Uncertainties: Life is unpredictable, and unexpected expenses or emergencies can arise at any time. Budgeting helps us build a financial safety net by setting aside funds for emergencies and unforeseen circumstances. This preparedness provides peace of mind and safeguards against future financial hardships.
Building Financial Resilience: Budgeting fosters resilience by empowering us to bounce back from setbacks, overcome challenges, and build a secure financial future. It instills confidence in our ability to navigate financial hurdles and thrive independently.
How to budget after divorce and/or financial abuse
When you start looking around on the internet for budgeting information, you’ll come across various methods that all have their own pros and cons. My preferred method is using a zero-based budget.
Zero-based budgeting is a method where every dollar of income is allocated to a specific purpose, leaving zero unassigned. In other words, you’re giving every dollar that you have coming in a job to do, whether that’s paying an expense, going into an emergency fund, or paying off debt, leaving no room for unallocated funds. It offers unparalleled financial control, preventing overspending by prioritising intentional allocation of income. This approach aligns spending with goals, promotes accountability, and fosters flexibility, making it ideal for women recovering from divorce or financial abuse. With zero-based budgeting, financial goals become tangible, stress is reduced, and a deeper awareness of spending habits is cultivated.
Sound good? Here’s how we get started.
Step one: If you get paid weekly, then you will create a weekly budget, or if you get paid fortnightly or monthly adjust accordingly.
Step two: Write down all your sources of income and total them. When I first started budgeting, I received benefit from Work & Income NZ and a payment from the IRD.
Step three: Write down all your fixed expenses that you expect to pay in that pay cycle. It would be things like: rent/mortgage, electricity/gas/other utilities, food, petrol, insurance, subscriptions etc.
Tip: If you have an expense that comes out monthly, but you get paid weekly or fortnightly, you can allocate part of your budget to putting aside the funds to go toward this expense. For example: you have a monthly car insurance payment. It costs $50 per month. You get paid fortnightly, so each time you get paid you’re going to allocate $23.08 toward that monthly car insurance payment and keep it in a sinking fund account.
$50 x 12 (months) divided by 26 (weeks).
Step four: Write down any payment towards debts that you have to pay and the amounts.
Step five: Write down the amounts that you want to or can allocate to savings such as short term savings, emergency funds and/or buffers, and investments such as Sharesies in New Zealand (you can start with just $5 a week but I’ll cover investing in future posts).
Step six: Allocate funds for your sinking funds - clothes, birthdays, holidays, annual insurances.
Step seven: Have a line for donations if you can afford it. Again, even $5 towards a cause you care about can help you feel good.
By the time you’re finished allocating money into each of the lines on your budget, you should end up with $0 left unaccounted for.
An example budget
Here’s an example of how I used to do my budget when I was getting paid fortnightly:
Income: $1,906
Rent: $700
Phone: $36
Power/gas: $50
Childcare: $300
Supermarket spending: $150
Petrol: $100
Car insurance: $25
Life insurance: $25
Debt repayment: $100
Emergency fund: $300
Birthdays/Christmas: $20
Kiwisaver for my daughter: $10
Sharesies for my daughter: $10
Sharsies for me: $20
Donation: $10
Buffer: $50
Sinking funds
You might hear the term ‘sinking funds’ when people are talking about budgeting. They are a savvy financial tool designed to help plan for irregular expenses and avoid financial strain when these expenses arise. These funds are set aside specifically for anticipated future costs, such as annual insurance premiums, holiday expenses, or even unexpected emergencies. The concept behind sinking funds is simple: by allocating a portion of your income towards these expenses regularly, you can ensure that you have the necessary funds available when the time comes to cover them.
Calculating sinking funds is straightforward and involves breaking down the total cost of an expense into smaller, manageable amounts. For example, if your annual car insurance premium is $500 and you are paid biweekly (24 times a year), you would need to set aside $20.80 from each paycheck into your car insurance sinking fund. By doing so, you can spread out the cost of the premium over the course of the year, making it more affordable and eliminating the financial strain of paying it all at once.
Sinking funds can be created for a variety of expenses, including holidays, birthday presents, Christmas or other holiday expenses, clothing allowances, and more. Many women choose to manage their sinking funds through their bank by opening free online accounts dedicated to each fund. This allows for easy tracking of progress and ensures that the funds are kept separate from everyday spending accounts. Alternatively, some people prefer to manage their sinking funds with cash through a method known as envelope stuffing. With this approach, cash is allocated to different envelopes labeled for each sinking fund category, providing a tangible and visual way to track progress towards savings goals. Whether managed digitally or with cash, sinking funds are a valuable tool for financial planning and can help individuals navigate unexpected expenses with ease and confidence.
When creating your own budget, think about the type of sinking funds you might want to include. It could include little or large treats like coffees once a week or a restaurant meal once every two months.
Track your spending
When you’re first starting out budgeting, it can be difficult to allocate an amount of money against items such as food spending and petrol. A good way to figure this out is to pull up your last two months of bank statements. Total all the amounts that you’ve spent in those two categories. You could use these amounts if you think they are reasonable; however, if you think you could tighten up your food spending for example, try and reduce the amount you allocate to it and stick to your budget going forward.
By doing a zero-based budget, you don’t really have to track your spending going forward as every dollar is already accounted for.
Tracking your progress, month-end round up & calculating your net worth
Tracking your progress on financial goals is essential for staying motivated and accountable on your journey towards financial stability and independence. One effective way to track your savings and debt payments is through the use of trackers. These trackers provide a visual representation of your progress, allowing you to see how far you've come and how much closer you are to reaching your goals.
There are various methods for tracking financial goals, ranging from online tools such as apps or spreadsheets to more traditional approaches like printing off tracking colouring pages. Online tools offer convenience and flexibility, allowing you to access your trackers from anywhere and easily update them as needed. Apps and spreadsheets can also provide additional features such as automatic calculations and customisable layouts to suit your preferences.
For those who prefer a more hands-on approach, printing off tracking colouring pages can be a fun and engaging way to monitor your progress, especially if you have kids. These printable pages allow you to visually track your savings or debt payments by colouring in sections as you reach milestones or make payments. Not only does this method provide a tangible representation of your progress, but it also adds an element of creativity and personalisation to the tracking process.
As part of this blog post, you can download a budgeting bundle that includes savings and debt payment tracking colouring pages. See the download details at the end of this post.
The month-end roundup is another optional but useful step in the budgeting process, providing an opportunity to assess your financial health and progress towards your goals. During this time, you review your budget, compare actual spending against your planned allocations, and identify any discrepancies or areas for improvement. This evaluation allows you to gain insights into your spending habits, adjust your budget as needed, and make informed decisions moving forward. By dedicating time to this routine, you can stay proactive in managing your finances and maintain momentum towards achieving your financial goals.
Tracking your net worth is another valuable aspect of financial management that provides a holistic view of your financial situation. Net worth is calculated by subtracting your liabilities (such as debts and financial obligations) from your assets (including savings, investments, and other valuables). Regularly tracking your net worth allows you to monitor your financial progress over time and assess your overall financial health. It serves as a barometer of your financial stability and can help you identify areas where you may need to focus your efforts, such as paying down debt or increasing savings. Utilising tools such as spreadsheets, financial apps, or online calculators can simplify the process of tracking your net worth and provide valuable insights into your financial trajectory.
By incorporating the month-end roundup and tracking your net worth into your financial routine, you can maintain a clear understanding of your financial standing and make informed decisions to achieve your long-term financial goals. I use a free net worth calculator called ‘WorthTracker’. I have to admit that I get a dopamine hit in manually updating the totals of my assets and liabilities on each pay day and watching my progress build over time.
Top tips for budgeting
Budgeting is easy (and can be fun) once you know how. Just remember that a budget isn’t set in stone, and the longer you budget, the better you’ll get at it. Learn to be okay with adjusting your budget when needed, and remember it’s okay to make mistakes, it’s how we learn. Being dedicated to having a budget means that if we fall off the wagon with our spending, we always have a framework in place to revert back to. You’ve got this, girl!
After almost four years of budgeting here are my top tips…
Don’t get caught out with calculations. I’m embarrassed to admit that when I went from a fortnightly to a monthly pay schedule, I ended up in arrears on my rent as I was underpaying my rent for several months. I thought that in order to calculate my rent, all I had to do was take my weekly rent payment and times it by four, because there are four weeks in a month, right? Wrong.
Instead, I should have taken the weekly rent cost, times it by 52 and then divide it by 12 to get my monthly rent payment. Hey, numbers are not my forte! But thankfully I had a fully funded emergency fund, so I was able to sort this out as soon as the property manager brought it to my attention!
Get loud with your budgeting! Tell people you’re on a budget and have no shame about it. With the current cost of living crisis most of us are feeling the pinch and would appreciate having friends to do free things with like making coffee at home and going for a walk. Plus if you’ve got kids, get them onboard with budgeting - you’ll teach them financial literacy and they’ll understand that you’re working together on financial goals as a family instead of just being a meanie saying ‘no’ all the time.
Use cash. If it’s just too tempting to wave your card and spend up large, start using cash. For some people it works as a nice little psychological trick that makes spending more tangible and your cash harder to part with. You can withdraw your food budget and only spend cash at the supermarket, once it’s gone it’s gone!
Allocate money to an emergency fund and build in a buffer. I like to have a bigger emergency fund that I keep in a high interest savings account that takes a day or so to get funds from, and a smaller ‘Rainy Day Fund’ that I use as a buffer for unexpected, but smaller expenses that I keep in a savings account that is easier to access. This stops me from dipping into my savings for unnecessary spending when I’m lacking willpower.
Have separate online bank accounts for different line items in your budget. This is like a digital version of envelope stuffing with cash. Via my banking app, I have my main account that my salary gets paid into, then I have separate accounts for Food, Petrol, Parking (I pay to park at work), Childcare, Utilities, Other Bills (like car and life insurance), and Birthdays & Christmas sinking funds. These accounts don’t have a card attached to them or have any monthly fees as they are online. I can simply transfer the funds to my main account when I need them, and it stops me from thinking I have a great pile of money to spend when it’s all in one account.
Pay yourself first. You’ll hear this phrase all the time from personal finance gurus as it’s a fundamental principle in budgeting and personal finance that prioritises saving before spending. The concept is simple: before allocating money to expenses or discretionary spending, set aside a portion of your income for savings and financial goals. This approach emphasises the importance of building financial security and wealth over time by making saving a non-negotiable part of your budget.
By paying yourself first, you treat savings as a top priority rather than an afterthought. This means allocating a predetermined percentage or fixed amount of your income towards savings, investments, or debt repayment before covering other expenses. Whether it's contributing to an emergency fund, retirement account, or debt repayment plan, paying yourself first ensures that you prioritise your long-term financial well-being.
The benefits of this approach is that it fosters a savings mindset and encourages disciplined saving habits, helping you build a financial cushion and achieve your financial goals faster. Additionally, paying yourself first ensures that savings are not neglected or sacrificed in favour of discretionary spending, reducing the risk of overspending and financial stress.
Automation is your friend. With the previous top tip in mind, automating the payments from your budget can make things easy. Set up automatic payments from your bank account the day after pay day so that your expense, and your savings, investments and donations will go out of your account automatically and you don’t have to think about it.
Don’t be too rigid in your budget. I 100% understand wanting to make progress in reaching your financial goals. When I first started out, I didn’t allow myself any treats or luxuries. Problem was that being that rigid sometimes meant that I’d go through a ‘down’ period and go on a little splurge - lunches out, too many coffees, new clothes for my daughter that she probably didn’t need! If you can afford to build in a sinking fund in your budget that allows for things like coffees out once a month, or a haircut once every three months, do it by delaying the gratification and allocating funds into your budget so that you have something to look forward to. I know that money is tight for lots of us, so if it’s not something expensive, try and think about something little that would bring you a little joy - a trip to the beach for a picnic maybe?
So, that covers the basics of budgeting. Was this article helpful? I hope so! If you have any specific questions relating to budgeting, please let me know and I’ll try and create a post to answer your frequently asked questions.
Also, keep an eye out for an online budgeting course in the near future.
Now it’s over to you to create your own budget. Like me, you can write your regular budget into a notebook, or you can download the free She’s Worth It budget template that I’ve put together below as part of the budgeting bundle - just subscribe to the mailing list and it will be delivered to your inbox.
