Taking Control of Your Finances

Have you ever found yourself thinking, “There just never seems to be enough money”? If that sounds familiar, you’re not alone. Many people in New Zealand face the challenge of managing their money, regardless of their income.

With the ever-increasing cost of living, making ends meet can be tough, but don’t panic. No matter how much money you make each week, there are steps you can take to manage your money better. In this article, we’ll guide you through the process of budgeting in a straightforward and non-judgmental manner. We’ll also provide tips to help you develop better financial habits so you can save more and stretch your pay further.

Creating a Budget with a Limited Income

Even if you’re rolling in money, you still need a budget. It is a tool that every person should have regardless of how much they earn. Despite what you may think, a budget isn’t about what you can’t do. It is not ‘ball and chain’ stopping you from having fun. It’s a positive, powerful tool to help you reach your goals, so you can do what you want to do, and live the life you want. It is your financial roadmap, helping you allocate your money.

Budgeting is all about balancing money with priorities and finding what works best for you. It is about setting achievable short-term goals and developing better financial habits so you can generate momentum and achieve your long-term goals. So, just take it one step at a time and you’ll be on your way to financial success.

Step 1: List Your Income

Every budget begins with your income, regardless of its size. To determine how much you can spend each month, you must first understand how much money is coming in. Make a list of all your income sources, which may include your salary, part-time work or side gigs. If your income fluctuates, I recommend using your lowest monthly income as a starting point. You can always adjust upwards later.

Step 2: List Your Expenses

Once you’ve established your total monthly income, it’s time to plan for your monthly expenses. Your bank account or credit card statements will be a valuable resource here, helping you get a clear picture of your spending habits. Start by addressing your ‘four walls’: the essential expenses that should be covered before anything else. These include food, utilities, such as phone, power or gas, shelter – rent or mortgage – and transportation and fuel. Estimate how much you spend on these, keeping it as realistic as possible. Then, account for other expenses like childcare, insurance, hairdressers, entertainment and debt payments. Be sure to also include occasional expenses like car repairs, doctor’s visits or presents. Also, don’t forget to create a category for miscellaneous expenses because life always tends to throw us surprises, good and bad.

Step 3: Subtract Expenses from Income

Zero-based budgeting is where your income minus your expenses equals zero. This means that every dollar you earn has a designated purpose in your budget—whether it’s giving, saving, spending, or paying off debt.

Managing a Tight Budget

If your income doesn’t seem to cover all your expenses, and your zero-based budgeting calculations initially give you a negative number, don’t worry; this is why you need a budget. It helps you identify and address overspending before it becomes a problem and there are strategies you can employ to balance your budget. Some of those involve being more intentional about your spending and probably making some sacrifices, especially if you’ve been relying on debt to pay bills.

Just remember, balancing your budget and getting back on track means you can spend with confidence. Even if you do have to cut some treats out of your life, you’ll be very pleasantly surprised at just how much peace and freedom a budget gives you.

1. Cut Out Extras: Review your budget and identify expenses you can cut. Do you really need all those streaming services? What about non-essential expenses like daily coffees: do you absolutely have to buy them? Try finding multiple small cutbacks. By going through your bank or credit card statements line-by-line, you may find you’re frequently spending little amounts. If you make several small cutbacks they can really add up.

2. Reduce Dining Out: Eating out frequently can strain your budget. Cooking at home may require more effort but can save you a significant amount of money. Also, it can mean you’ll have leftovers you can take to work for lunch. Noy buying lunch each day is another way to save loads of money each week.

3. Minimise Clothing Expenses: Unless you or your family genuinely need new clothes, try delaying clothing purchases or shop at an op shop. It’s an effective way to free up cash.

4. Sell Unused Items: Declutter your home and your life and sell items you no longer need. From old sports equipment to rarely used household items, these can provide extra cash to boost your income.

5. Save on Necessary Expenses: Look for ways to reduce costs on essential expenses. For instance, try meal planning, and buying generic products – you may be surprised to find that the cheaper brands can be just as good as the more expensive ones. Consider shopping at more affordable grocery stores and only going once a week or doing your grocery shopping online. This will help prevent non-necessities and treats from sneaking into the grocery trolley. Shopping online can also make comparing brands and prices and finding the best deals easier.

Implementing small changes in your power usage and phone plan can also lead to savings. Shop around for phone, electricity and internet providers. Try using comparison sites to see if you’re on the best plan for you. Reducing bills by $10-$20 a month adds up to big savings over a year.

Increasing Your Income

If you’ve cut expenses as much as possible and still find yourself struggling, it might be time to explore additional income sources:

1. Side Hustles: Consider taking on a side hustle. Whether it’s mowing lawns, babysitting, doing food delivery, creating handmade crafts, or tutoring online, side gigs can provide valuable extra income.

2. Overtime at Work: If possible, inquire about opportunities for working overtime or taking on extra shifts at your current job. These additional hours can significantly boost your income.

3. Freelancing: If you have skills like photography, writing, web design, or bookkeeping, consider freelancing. Freelance work allows you to set your rates and choose projects that fit your schedule.

4. Explore New Job Opportunities: If your current job offers little room for growth or has a low-income ceiling, it may be time to explore new career opportunities.

Building Financial Stability

Achieving financial stability on a low income is possible with the right approach and here’s how:

1. Establish an Emergency Fund: Even with limited funds, you still need to build a starter emergency fund of at least $1,000. This fund acts as a safety net and prevents you from going into debt when unexpected expenses arise.

2. Avoid Debt: While it might be tempting to rely on credit when finances are tight, debt can worsen your financial situation. Commit to not using debt as a crutch and prioritise paying off existing debt to free up your budget.

3. Adapt Your Budget: As your income changes and expenses fluctuate, continue to adjust your budget. Every dollar should have a designated purpose, even when resources are scarce.

The Choice Is Yours

Managing your finances better requires careful planning and making conscious choices about how you spend and save, particularly if you are on a low income. By creating a budget, making necessary adjustments, and exploring opportunities to increase your income, you can get control of your finances and work toward reaching your financial goals.

Remember, a budget isn’t just about managing money; it’s about taking charge of your financial future, regardless of your income level. A budget provides a sense of control and can make the difference between planning and going into panic mode. And, if you think about budgeting right, you can turn it from something you dread into an empowering money management tool to get you what you want.