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3 Elements to Making Your Best Household Budget

I like to take on a bit of running, 10-15km mostly and certainly not at any pace that puts me in contention for the olympics. It’s no doubt some form of mid-life crisis as I try to help my body forget the poor management it suffered in my 20’s. 

The best part of running for me is the way it makes me feel after I’m finished which is also what gets me motivated to get up and do it all again the next time. Really a simple satisfaction of completing a task that I know is difficult but I did it anyway. Not pretty, not magnificent, but it’s completed all the same. 

The most difficult part of running for me is getting started. I have once spent 90 minutes putting on my shoes and other gear all to get going on a 30 minute run. There’s a real process I have to go through so that each stage of getting ready is small and takes very little willpower and effort to move from one to the next. 

Managing money I’ve noticed, for everyone, is exactly the same so over the years we’ve developed a 4-step system of budgeting that works:  

  1. Acceptance of the need to create a budget  
  2. Awareness of your current expenses  
  3. Improvement of your budget to fit your current life stage 
  4. Performance management to consistently meet your budget   

The hardest part of any task is getting started so let’s focus on the first step of Acceptance of the need to create a budget. 

Firstly, creation of your household budget needs to follow a framework. We created the Hierarchical, Tenacious & Relative (HTR) budget framework to help get you started: 

Hierarchy of Expenses 

A Hierarchy, or priority of expenses, is needed to help work out what’s essential and what’s just desirable. We like to break things down into Needs, Wants & Goals. 

Your Needs are things like electricity, phone, food and rent or minimum mortgage repayments. 

Your Wants are the items that you could probably live without if you had to such as restaurants, movies, streaming services and takeaway.  

Goals are the allocations toward things that are building for your long term such as additional mortgage repayments, holiday savings, additional super contributions & regular share fund contributions. 

Which of your expenses that you decide fits into each category is entirely up to you, there’s no one that’s going to punish you for not fitting into a specific mould.  

However if you are someone that would prefer a guide to work by, then use an allocation of 50% for Needs, 30% for Wants and 20% for Goals and work towards that over time. 

Tenaciously Stick to Fixed rather than Variable Expenses 

Aiming for fixed expenses as the majority in your budget can give you security of your payments and a true reduction in the number of surprises you’ll face.  

You can break down just about any lumpier expense like electricity or rates, home repairs, holidays and school fees into direct debits that align with your pay cycle.  

There’s no set ideal percentage but the larger the share of fixed expenses the lower the risk of surprises for you. 

Budgeting Theory of Relativity 

Once you’ve built your budget it’s important to understand where each group of expenses sits when expressed as a percentage of your total expenses. As your income grows over time you can try and keep your expenses as a similar proportion of your total income.  

You might enjoy this when it comes to taking holidays for if you spend 5% of your income on taking a holiday when your income is small then you’re going to have a much better holiday when your income is much larger and you still spend 5% on it.  

It also means that your allocation toward savings and investing will increase proportionally with your income. 

Having a Relative budget means that not only do you benefit from your pay increase now with better holidays and entertainment but you also benefit in the long term from a larger retirement pool and being debt free earlier. 

What next? 

So to put your reality into this 4-step system of budgeting, work through the following: 

  1. Accept that you need a budget then get on with making one focussing on the HTR framework. Download our CommonCents Budget Template or try one from 
  2. Download your last 12 months expenses from your internet banking into a spreadsheet to become Aware of your current expenses and then see how these compare with your prepared budget 
  3. Improve your budget over time as your life changes. Kids starting or finishing school are good examples of life changes that will impact your budget and require a revisit to improve 
  4. Aim for some consistency of your ability to match your actual expenses with your budget. The closer you align these two the better your Performance and the faster you’ll reach your richest life 

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