How to start budgeting

One of the best ways to simplify your life AND look after your mental well-being is to have a budget that works for you. Knowing where your money goes helps free up your mind, helps prepare you for any ‘rainy day’ scenario and helps you save up for travels or other fun things you’d like to do. It basically gives you freedom and choices! In the bottom of this blog post, you’ll find the 5 type of bank accounts* I use and would strongly recommend you explore for yourself.

Now listen to me. There is no shame in starting from scratch, that’s exactly what I did. It does not matter how old you are or what you ‘should have’ been doing up until now. Taking charge of your financial situation is something only you can do, and with the right support it’s not as hard as you might feel that it is!

I will admit that I did not used to have a budget at all, I just used to just save like crazy leading up to any big trip I had planned. My dad always nagged me to have a savings account for emergencies too, and thanks to him I did have enough money put away for some of those hard days when I got hit with an unexpected expense. I kind of got by with no real plan. And I’ll willingly admit that I had no financial goals at all, except being able to afford to travel internationally about once a year.

It wasn’t until I had a massive financial scare about 4 years ago (I was single at the time and potentially loosing my job), I had one of those hard awakenings. I had just come back from a big trip to visit family back to Sweden, I had no savings in the bank and if I lost my job then, I would have been in big trouble. I will never forget how I felt that day. The shame and the self blame. How could I have put myself in this situation?

Luckily I did not loose my job, but from that day forward, I promised myself that regardless how much or little I earned, I would find a way to always look after myself financially.

My first step was to educate myself more about budgeting and finance. I have watched countless YouTube videos over the past few years to look at different budgeting systems and tried a bunch of them to see what worked for me. One way of budget thinking that really worked for me was Barefoot Investor. My friend bought me his book a few years ago (I’m in no way sponsored by his brand), and I immediately resonated with his thinking around finance. His book and blog is super useful for you to get started, regardless of your income level or potential debt. My financial approach that I share below is a combination of his advise and other tips and tools I have learned via a range of YouTube budgeting channels.

The 2 things I started doing that made a huge difference for me:

  1. I tracked my spending for 3+ months. Not the most fun I’ve ever had, but very important! I did this to find out what I was really spending my money on and see if my draft budget was realistic. Most people (I am no exception!) vastly underestimate how much they spend on groceries, eating out, entertainment, transport and a bunch of other things. After tracking it for a few months, I pretty quickly worked out what was realistic and set some personal savings goals.
  2. I set up a structure of bank accounts to earmark a certain % of my income to different things. Specifically, I set up (and still have) 5 different bank accounts with very different purposes. This might sound like it’s more than what you need, but most people who are good at managing their money have dedicated ‘pools’ for their money to go into.

Remember, you don’t have to have a high income to set this up for yourself. Most banks will allow you to do this in just a few minutes online.

The 5 types of accounts I have:

  1. Everyday account for salary and bills. This is where my salary comes in and all money for bills, groceries, and rent come out from.
  2. Everyday spending account. This is what I use for eating out, hairdresser, transport (uber, taxi, public transport), gym related things, coffees, gifts and pretty much everything else I spend money on that is not just for ‘survival’. I know some of you would argue coffee is sometimes survival, on most days I would agree with you… 🙂
  3. Smile savings account. In Barefoot investor, he talks about having a savings account where you save up for fun things that make you smile. I love this way of thinking and how much more fun do you have knowing that you can enjoy that experience 100% guilt free when you save up for it first! This is a high interest savings account where I save up for travels, more expensive experiences (like my skydive), a new fancy bicycle and other bigger purchases. Normally about 10-15% of my income goes here.
  4. Future fund savings account. High interest savings account to use for bigger future investments, for me this is a house deposit. I normally put about 20-25% of my income here.
  5. Emergency fund. This is a bank account that I never touch! It’s the one I saved up for first, I’ve got AUD$2,000 in there and it’s only for absolute emergencies or unexpected bills only. I’m happy to say that I’ve never had to use it, but it gives me great peace of mind to have it should I ever need it. Some might argue that an emergency fund should have more than $2,000 in it, so just choose whatever number you need to be comfortable.

If you have credit card debt or other debt, the above might look a bit different for you. There is a wealth of knowledge and tips across the internet on how to pay off debt quickly, so just start researching and start working on it.

The main thing I have learned when it comes to budgeting and money, is that it really does not matter all that much how much you earn every month. Yes, more money can help you reach some goals faster, but what matters the most is what you do with the money you have and the everyday decisions you make to improve your financial situation!

* Please note: I’m not a financial advisor, so all the advise shared here in the blog and in my videos is just what I’ve tried and learned myself and what is working for me right now. Naturally you need to experiment and see what works in your unique situation! Always seek professional financial, legal or other advice before you make any big financial decisions in your life.

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