Step by Step Guide to Wealth

The Dreaded Budget

How to set up an automated budget payment system and reduce the stress of paying bills.

First of all, write down every expense you have over the course of a month and be accurate. Don’t guess. Check your bank accounts and write down every time you buy a coffee or any other item, laborious and boring I know, but essential if you want to get this right. Write down how much you need to spend on birthday, Christmas and odd presents you need to buy over the course of the year. Write down any one-of payments you need to make monthly, quarterly biyearly or yearly…

*Disclaimer: Information offered does not constitute financial advice. You need to assess if the information offered suits your personal circumstances.

Here’s a memory jog for finding expenses…

• Car rego
• Car Insurance
• Car Servicing
• Rates
• Mortgage
• Loans
• Car loans
• Credit cards
• Rent
• Utilities
• House associated Insurances
• Life Insurances
• Income insurance
• Health memberships
• School fees
• Gym fees
• Personal trainer fee
• Activities
• Professional services such as an accountant
• Taxes
• Fuel
• Public transport
• Charity or donations
• Any direct debit not mentioned
  • Clothes
  • Sport fees
  • Hobbies
  • Travel
  • Medical – Doctor/dentist/pharmacy and so on
  • Education
  • Incidentals
  • Other
  • Work fees
  • Household repairs

If the amount is already monthly, great, and if not divide it by the payment term it is over. You can also dive it into weekly if you wish which is easier if your pay is weekly.

Next, do the same for any expected income including tax refunds, potential bonuses and child benefits.

Create a spreadsheet or use the one we attached to monitor your cash-flow and insert the numbers. Remember if you have any large payments coming up you will have to allow larger monthly amounts upfront to accommodate this and after the amount is paid, then you can reduce it down to the smaller amount. This will give you reasonable idea on what your cash-flow looks like. You will need to continually have to refine the numbers until you are comfortable with them. Check out if you have your head above the water or if you are slowly going under.

Go to your bank and open up new no-fee accounts that can be used for separating different expenses. Use one account for your auto draw payments, utilities, insurances and so on. Set up an auto transfer from your pay account to all set aside accounts. Transfer the required amount into each new account and make sure you name each account for ease of recognition. To avoid temptation DO NOT get any cards attached to those set aside accounts.

You can leave funds in your pay account and use that for your daily living expenses such as food, clothes, entertainment and anything you would use cash for.

You can combine things like the school and activity group, the transport group and the odd group into another set aside account. Since there are no bank fees attached to these accounts and you can auto transfer between accounts, it keeps things simple. 

Contact all companies that will do direct debits and advise them of the bank account details to draw the money out of. You may have to change some details you already have set up, but it’s worth it. Find out if they will alter the date so you payment comes out the day after you get paid for extra safety in case of an unexpected shortfall. If they don’t do direct debits, set up your own auto bank transfer from you pay account to your expense account. Set it up so it transfers the day after your pay arrives.

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When I first designed this model many years ago I was already well under water and breathing through a long straw. Occasionally, someone would come along and put their thumb on top of the straw and it felt like I was suffocating, but this too passed. Although this system is basic compared to some software out there, this was the only thing that gave me a very accurate idea of where I was on a daily basis and what I had to do to recover. It also stopped the stress.

By setting up auto payments, it takes the pressure of having to remember of have I paid this or have I paid that. It’s in some ways like setting your finances on auto-pilot.  

The first thing people do is start cutting expenses which is a wise thing to do, but what most people don’t even think of is how they can increase their income.

Do you have a way you can increase your monthly income? Here are some short and long term solutions. First of all look at increasing by decreasing.

Short term

• Reduce unnecessary expenditure
• Offer a payment plan to anyone you owe money
• Put a hold on payments for a short time if possible
• Sell any unwanted household items
• Eliminate luxury items
• Find a cheaper way to do the same thing
• Consolidate loans and cards (Seek financial advice on this before doing so)
• Cut your cards up
• Only pay cash for purchases to avoid over spending
• Down size where you live
• Compare service providers
• Go to the shops with a shopping list and avoid the sweets isle and impulse buys
• Clip coupons
• Take your own lunch to work

Long Term

• Ask for a raise
• Create an auxiliary income from home
• Pay off high interest loans first

In summary, setting up, monitoring and sticking to you budget lets you know exactly what your money is doing. It tells you months down the track if you will have a shortfall or if you can afford a holiday. It also tells you how much you can saves without running low and by having separate accounts, you avoid the temptation of spending money you don’t have.

I hope this helps in setting up an automated budget payment system to alleviate bill stress come payment time.