When starting out, building a budget may seem daunting, and it can be. But with some simple structure and a little guidance, it can be built relatively easily. And it’s a vital step toward financial independence. The first one is always the most difficult. From month two onward, you are just re-checking the latest numbers and updating your existing budget document.

All the nuances of a Smart Budget are too much for this short blog but the details, including simple explanations, along with a handy checklist, are all included within our Smart Money Method™ program. So, for now, we’ll just summarise the highlights.

Incidentally, we find it best for most folks to change the terminology of a budget to a money plan instead because most view the word ‘budget’ negatively. Whereas a money plan simply directs where you want to spend your income, in a written plan, and is over-laid with your goals.

We advocate some basic foundations when starting to build a money plan.

Firstly, don’t guess at what you think you’re spending. Review the past 3 months (or more) of your bank statements to find the averages. And use your latest debt statements for accurate numbers too. There’s little point in guessing as your money plan foundations will not be straight and you’ll be setting yourself up for failure.

Although we prefer accurate numbers for both income and expenses, we recommend you round these numbers to the nearest $10-$20 or so. This will build in some flexibility as expenses change over time or vary each month. This is also why we like to average the expenses over at least 3-months – it takes into account variations and even seasonal differences… think about how your electricity bill varies by season, for example.

As an ideal, we prefer the well-known system called the 50/20/30 budget. But we’re going to call it your 50/20/30 Smart Money Plan! This means you do your best to stay with the following boundaries in how you direct your after-tax spending:

  • 50% of your income goes to your day-to-day living expenses, including debt obligations,
  • 20% of your income goes to your savings – including short, medium, and long-term.
  • 30% of your income (the balance) is for your enjoyment and living a satisfying, joyful life.

Remember, the 50/20/30 money plan is just an ideal to work toward. Your individual debt repayments will likely change these percentages but, over time, we recommend implementing this model as quickly as possible. It’s very important you ensure you’re enjoying life sensibly as your income and goals allowed.

A Smart Money Plan is always written down, easily accessible, and updated monthly. After all, a goal not written down is a wish, not a plan!

You now have sufficient budget planning highlights to build your own plan. A detailed strategy for your Smart Money Plan or budget is available within the Smart Money Method™ program. Just remember it is a living document and it will change regularly so monthly reviews are important too.