Here's how to make your money work harder

This past December, according to our research, 58% of New Zealanders were feeling uncomfortable financially. That's most of us. 

There’s a lot we can’t control at the moment. We’re riding a wave of cost-of-living pressures and high interest rates, and it’s easy to feel deflated in this environment. There will be a light at the end of the tunnel, but what can we do to stay motivated in the meantime? 

One powerful action we can take is putting together a good money plan. We’ve launched a brand-new budget planner on Sorted, which is designed to help people find extra money and flow it to what’s most important to them. It makes it easier than ever to set up a new budget from scratch, quickly gathering the key things in your life and identifying where you could set aside money for goals. 

Whether you prefer an online tool, pen and paper or a spreadsheet, there are some steps you'll want to take to get the most out of a budget. And remember, your budget (or money plan) is a living, breathing thing that will change as time goes on. It should be flexible and easy to adapt over time. Here’s how to budget your way to a more comfortable year. 

Figure out how much money you’ll have coming in 

This will include your main salary (after tax) if you are employed, but also any extra money you expect to make from side hustles, investments or anything else.  

If you’re in a relationship, you may want to create your budget based on your joint income and expenses.  

If you’re a freelancer, contractor or self-employed, you’ll need to estimate how much you expect to make based off your previous income and your work plan for the year. It's also a good idea to keep a detailed record of your contracts to help manage any irregular income. 

Lay out all your major financial commitments 

Think about the biggest costs in your life – your car, home, kids, or pets. These are the non-negotiable costs that will form the foundation of your budget.  

They form your starting point and will give you an idea of what your spending would look like if you had no extra luxuries or ‘fun money’. But don’t worry, you don’t need to cut all the fun money out. We’ll get to that later! 

Get a good picture of your day-to-day spending 

Tracking your spending is important as it shows you where your money is really going. 

It can be hard to remember what you bought yesterday, let alone last week or last month, so consider printing out a few months of bank statements to make sure you don’t miss anything.  

You’ll also be able to spot spending leaks and places where you might not want your money to flow. 

It can often be surprising to see where your money’s going. You might find that some of your biggest costs are not what you thought, or small things you’ve worried about (e.g. avocado toast) don’t actually have that much of an impact.  

Map out your expenses  

Now’s the time to plan your spending. And make sure you do include some fun money! 

Start writing down your expenses and how they fit into different categories, such as your rent or mortgage, groceries, fuel, clothing, school, birthdays, date nights, Christmas and anything else important to you. Make note of whether these expenses are monthly or yearly. 

The Sorted budget planner has the main expense categories built in, so you can easily slot in the amount for each one. You can also add your own expenses for anything that’s not there.  

Prioritise your spending 

Now you’ve pulled together a list of your expenses, it’s time to prioritise them. I like to do this based on ‘happy spending’.  

There will be some obvious must-haves that aren’t negotiable, things like rent or mortgage, power, insurance and groceries... These are your highest priority.  

But think about the more optional things – takeaways, subscriptions, travel, gym memberships... If you think about the emotional ‘return’ you get from each, which of these makes you feel most fulfilled? 

You might get a lot out of a monthly date night and trip to the cinema, but end up scrolling on your phone mindlessly most of the time when you’re using your Netflix subscription. 

Prioritising your spending can help you decide what’s worth cutting out. In this case, you’d consider dropping Netflix from your budget and focusing that money on the date night.  

Set some goals 

Setting money goals can help focus your money and your life. They help us to work out where we want to be moneywise.   

Your goals can be short or long term, small or large, but they need to be specific and achievable. We often tend to underestimate how much we can achieve over time. 

Your big money goals might be saving an emergency fund, buying a home or saving for retirement, while smaller goals like saving for a deposit or paying off credit cards can help keep us motivated to get there. 

To flow money towards your goals you’ll need to make sure you’re spending less than you earn. The Sorted budget planner will help with this by letting you know if you’re in a surplus or shortfall. If it’s a shortfall, have a play with your numbers and think about any spending you could trim down. 

This will allow you to flow that money towards what you want.  

Make your plan stick 

After setting your budget, it’s important to continue tracking your spending to stick to your plan. This way, you can see what's working and refine it over time.  

It’s not realistic to stick to the same spending plan for months on end. Things change and you will need to shuffle your money around.  

Put a reminder in your diary to review your plan after three months and see if you can make any changes. Check to see how you are going with your goals – can you find any other money to funnel towards them? You might also find after six or 12 months your goals change, so you can update your plan to reflect that. 

Remember, a good budget should make your life easier, not harder!  

It’s about taking control of your money and hacking your finances to get where you want to be. 

This blog was originally published by Stuff.