How do we make a budget? | Feb Financial Fixes

Maddy: [00:00:20] Hello and welcome to You're In Good Company, a podcast that makes investing accessible for everyone. I am Maddy Guest and as always, I'm in some very good company with my co-host, Sophie Dicker. 

Sophie: [00:00:31] Hi Mads. 

Maddy: [00:00:32] I felt so weird saying my full name. 

Sophie: [00:00:34] Maddie Guest. 

Maddy: [00:00:35] Maddie Guest. 

Sophie: [00:00:36] Sophie Dicker. 

Maddy: [00:00:37] I feel like you never really say your own name, do you? 

Sophie: [00:00:39] No. And I also always get called by my last name. But, it Changed a lot in the past year or two. 

Maddy: [00:00:46] Has it? I really started playing so fun here. Yeah, because I always called you Dicker.

Sophie: [00:00:52] Most of my friends called me Dicker, but it's really how to shoot a Sophie. 

Maddy: [00:00:56] Maybe it's a maturing. 

Sophie: [00:00:58] Yeah, maybe I'm just in a bit more trouble. You know, I feel like when people say, you live with Jane, like someone's like Madeleine. You're like, Oh, no. Even if I say it in a nice tone, like Madeleine. 

Maddy: [00:01:07] Yeah. 

Sophie: [00:01:07] So, like, something's wrong. 

Maddy: [00:01:10] Anyway, wake to a Feb. Recommend. If you are just joining us, go back to last week's episode because Feb is all about, I guess, sort of four weeks with four steps or things that we are doing to set ourselves up for the year ahead. 

Sophie: [00:01:26] January doesn't count, so start in February. 

Maddy: [00:01:28] Exactly.

Sophie: [00:01:29] But today is the second thing that we're going to chat about, which is a little bit controversial. We're talking about creating a budget, but will caveat by saying it's not like a budget budget. I just it's just like a like a little outline to help you understand what you're spending and help you kind of achieve your goals. 

Maddy: [00:01:51] Yeah. So I guess for some context, this is something that you have done recently. Yes. I have such a weirdly like visceral reaction to you saying that we're going to be talking about budgets. I have a real I don't like the idea of constraining. And I think, you know what I actually think maybe it comes back to is that line that we sometimes talk about in the podcast Red, like women are often told that the road to financial empowerment is learning to budget. And the idea that in order to be financially successful or secure, we have to cut back. Yeah, this is and this is a generalisation, but the idea that men are taught to like invest and invest in themselves and grow their wealth, whereas we are taught to cut back. And I think maybe that's why I don't like this. 

Sophie: [00:02:34] Yeah, I think that's a good point. I also think a lot of like budgets get a lot of slack because they had been slack. Slack they have been like kind of proven over and over. It's not really work because they are restrictive. Yeah, and life isn't like that. It's like if you plan too much, you're going to be disappointed. And that's kind of what a budget is. It's just a disappointment. 

Maddy: [00:02:53] And so I guess with that in mind, what has led you to create one?

Sophie: [00:02:58] So a couple of things. I when I was reflecting on this year, I was like, I have a couple of goals for like a savings my how much I wanted my savings and how much I want invested. I think I'm starting to plan out what it will look like in the next couple of years to potentially purchase property. Yeah, so like a figure in a bank account and a figure into my vestment investments is becoming more prominent. Like real. Yeah, it makes sense. And then the second thing is that I have some debt on my Amex. Not a whole lot, but it's consistently stayed at that kind of like level. I want it gone. If you listen to last week's episode, I say I want to stop using my Amex. I just want it gone out of my life and I want to have a plan to get rid of it. I don't want to be like I have to get rid of it all in one. So that's what's kind of landed me at like a budget. A but a budget, what can we call it? I don't want to.

Maddy: [00:03:48] Financial plan or like the.

Sophie: [00:03:50] Word.

Maddy: [00:03:50] Like. Okay.

Sophie: [00:03:51] Like a friend. 

Maddy: [00:03:54] Yeah. 

Sophie: [00:03:54] Financial friend, my money friend, my tracker. I don't know. My money tracker.

Maddy: [00:03:58] So while you're talking just then as doing a bit of self-reflection, I can't quite remember when we talked about this, but it was at some point late last year where I think I spoke on the podcast about an article that my housemate sent me, and it was the idea of like two circles, and one is your current self and one is your future self. And the idea that if there is a lot of overlap in terms of you being able to visualise what your future self looks like, then you're more inclined to save money and which for example, you just say then in the next couple of years you want to buy a house. So you are quite clear around how much money you want to have and therefore you're making a budget or a finite money friend, whatever you called it. 

Sophie: [00:04:43] You're my friend. 

Maddy: [00:04:45] Thanks. Also, hopefully just an old friend. But anyway. But therefore you're putting something in place to help you achieve that. Yeah, I said at the time that I find it quite hard. To say what my future self looks like. Yeah. Which is maybe leading me to, you know, not want a budget and not want to cut back and do things like that, which maybe, like maybe it's a link. Maybe I need a real think about where I actually want to be in a few years time and then I might be more inclined to feel motivated about something like this. 

Sophie: [00:05:17] I think it is linked. 

Maddy: [00:05:18] To that self-reflection. 

Sophie: [00:05:20] Thank you for doing that right here and now. I love it. I think that actually is very accurate because we have always spoken about, you know, having a certain amount in your savings is like your emergency fund. And I have that. Yeah. And so I never thought I need more than that. 

Maddy: [00:05:34] Yeah. And that's why I currently. 

Sophie: [00:05:36] And then like, I'll look at I've got that fund and I might call that set. So if I've got left over discretionary, I've obviously I've put my money in my investments. I do that straight away. I'm like, Oh, I can spend it on stuff. Let's go buy stuff I don't actually need. Yeah, that's where the thing comes in, totally. So I think this is what's been a catalyst. I've got now bigger figures that I'm going to work towards and I need to get rid of that mentality of just like whatever I can spend it because it's in my account, put it towards something future self. 

Maddy: [00:06:03] Okay, so I guess that sort of covers off the why and I would really love to hear from from you, our listeners. If you've got a budget, if it's worked for you, how sort of in date, how a high level it's been, I'm also keen for you to tell me what you've done, Soph. But before we do, let's take a quick break for our sponsors. So Soph, let's get into it. What is sort of you sat down, you're like, okay, I'm going to make a budget, a financial plan, friend, whatever. What was step one? What did you actually do to do this? 

Sophie: [00:06:42] So step one was to assess what is coming in. Okay, so looking at my salary. Yeah, that I make it work. I get it pretty much the same amount every month. Yeah. And then also a little bit of other income from the podcast. Yeah. So they're like kind of my first two lines and I summed them up and I look at what's coming in every month and I also put in a little toggle, by the way, I'm going to share this Excel spreadsheet now with my figures, but for people to use. 

Maddy: [00:07:15] Amazing. 

Sophie: [00:07:16] I put a little toggle for a pay rise that I will try and get during the year at a certain time, but I've kept it very conservative. 

Maddy: [00:07:24] Okay, a question for you, and it is a personal question, but probably also applicable to lots of people. Our podcast income is very variable. Yeah, every Month. 

Sophie: [00:07:34] Yes. Good question. 

Maddy: [00:07:36] How did you go about that? 

Sophie: [00:07:37] So I had a little look at kind of the past six months of what we've made, and I have averaged it out and I've made it conservative. So I've put in actually a lot less than what maybe we would make, if that makes sense. 

Maddy: [00:07:52] And I guess, you know, that's probably less of a thing for you because you've also got your regular salary that you know how much you're getting. But for people who genuinely every month it varies quite significantly for creatives and things like that, that I guess is one of the first things that comes to mind in terms of like quite a big challenge with something like this because you don't really know what you're getting. But I guess, yeah, looking back over the last six, 12 months, breaking it down and then maybe taking a more conservative figure as well, could be a good way to, to get around that. 

Sophie: [00:08:23] Yeah. And being conservative just means that you don't get caught out yet during the year or during however long you want to make this budget for six months or whatever. So if something one month is actually a lot worse, it's like you kind of still got that buffer. 

Maddy: [00:08:35] Got it. So step one, review your incomings. 

Sophie: [00:08:39] Incomings?

Maddy: [00:08:41] Yes. Step two. 

Sophie: [00:08:42] Step two. 

Maddy: [00:08:43] Guess. Review your outgoings. 

Sophie: [00:08:46] Yes, but it's actually a little bit more specific. Okay. The first one is to review your musts. So what must go out. 

Maddy: [00:08:56] I like it.

Sophie: [00:08:56] Okay. And the reason why it's not like look at all of your outgoings is because this is where I think budgets go wrong when you try and allocate every single part of your life to a budget. Got it. So the second step I did was the musts. So I have a rent amount, a bills amount, health insurance, supermarket shops on average, just because that's a necessity. And then also something like a Mikey, like I'm always, you know, I spend like 50 bucks a week on everything, which does add up to about 200 bucks a month. So I put in a little bucket or the absolutes and for me personally, not applicable to everyone, an absolute was also a payment to my Amex card that is repaying. 

Maddy: [00:09:35] Yeah well I guess it's any debt that you have which might be a credit card, a car loan, a mortgage. So anything that comes out of your account regularly way that you have to pay.

Sophie: [00:09:45] Yeah, exactly. And then after that, I looked at how much I had over like how much I had left over from the musts. And I then kind of thought about the goals that I wanted for my savings and in my investing. Yeah. And the reason why I kind of did it at that point is because, like. It's not outlandish to be like, Oh, I want this certain amount of money. But it's actually kind of good to say like, say, a total figure like what you have after your musts, and then it'll give you a baseline for what you can actually what you actually make in the year. 

Maddy: [00:10:20] Yes. What you have left over after the things you have to pay.

Sophie: [00:10:22] Exactly. So then after that, I kind of made an average assumption of what I would spend on like the things that I love to do. So like eating out, socialising, things that I love to do. Wow. 

Maddy: [00:10:37] And how did you get to that figure? 

Sophie: [00:10:39] Okay, so eating out, I this sounds like a lot of work, but I promise it wasn't. I actually looked back to a couple of my nights out during summer. I looked at one night where I just went to the pub and I didn't have dinner and I went and looked at one night when I went out with dinner with friends and I kind of averaged what I spent. Yeah, that makes sense. Yeah. And then I made that figure not conservative. I actually over. Yeah, that figure, if that makes sense. So then that's the next line of it's not even I didn't call waiting. I didn't call it anything. It's just like your discretionary fund fund and yeah, that I have there. And then from that, that's when you can actually make a goal of, like, the amount you're gonna put into investing in the amount you're going to put in savings. Got it. And the budget that I put together is on an Excel that's got formulas and stuff is I want to share it because I can toggle around like, okay, if I put 500 savings and 500 into investing, I will still have X left over. If I put 700 into savings and 500 I'll have, etc. And then at the end you'll be able to say what the savings goal and what the investing goal gets to by the 12 month period. So it kind of you can play around and say what works nice. 

Maddy: [00:11:49] One thing that I really like about what you have just described is actively allocating money to fund. Yeah, because I think let me take a step back. If you don't do that, what I think you can end up doing is feeling bad every time you go out and spend money at dinner or with your friends. And that's where I feel like budgets can really sort of spiral and not be a positive thing. Yeah, you need to be able to go out and socialise and do those things that sort of feel like a cop. So I think doing really actually having a good think about allocating money towards that is quite important. 

Sophie: [00:12:23] 100%. I think if you, if you're so restricted in that if you give yourself a figure like a hundred bucks or something, you're really restricted, you're going to think, Oh, I can't say yes to that, or I can't say yes to that. But if you give yourself a bucket that you can use it for socialising or fitness or an activity or going away for a weekend or something, either this of that bucket, you can kind of use it, you know, without it being a super restricted number. 

Maddy: [00:12:46] Yeah. Some more self-reflection for you from me. 

Sophie: [00:12:50] Yes. 

Maddy: [00:12:51] I think one of the things that is stopping me from doing what you've done is I'm a bit scared to go back and have a look at these things. Yeah. Like I'm a bit scared of the reality check that I might get if I go back and actually have a look at how much I've spent on dinners and nights out. I kind of don't want to know, but I feel like maybe that's not a healthy thing. 

Sophie: [00:13:12] I think it's not that it's unhealthy. I think it's human nature. Yeah. But it's eye opening and it's necessary because it's not like, you know, you think in your head or I'm this I'm amazing with money or whatever. Like but when you look back you need to know those figures. 

Maddy: [00:13:28] Yeah, it's. 

Sophie: [00:13:28] Kind of just like eye opening to be like, okay, that's how much I actually do spend. So let's create an allocation that's going to work for that rather than, you know, thinking, Oh, I only spend like 100 bucks a month on eating out. 

Maddy: [00:13:39] Like, yeah.

Sophie: [00:13:40] We live in like an inflationary environment. Everything's going up. It's a really good and easy thing to do, I must. 

Maddy: [00:13:48] Say. Yeah, knowledge is power.

Sophie: [00:13:49] My other thing I would just say is that if you do have any other specific goals which I put in for this as well. So there's another little toggle. If you have like a travel bike or a mini budget that you want to hit during the year, I have, for example, $1,000 that I want to have by July because I want to do a, you know, a seven day thing in Australia with a couple of friends. So that will include flights and accommodation and whatever else. I have put that in just above the saving and investment line. And it just means $1,000 across seven months is 150 bucks a month. So I'm putting that into a different little savings account. Yeah. 

Maddy: [00:14:23] Short term savings. 

Sophie: [00:14:24] Goal. Yeah. And it's a good little thing to just think about. Okay, If I need that by July, what do I need to start saving now? 

Maddy: [00:14:29] Love it. I'm not going to lie. I actually feel physically nervous. Yeah, but I am going to set myself the challenge of trying to do this. 

Sophie: [00:14:39] Yeah, just the way I did it. One morning I was sitting in bed. It was a Sunday. I hadn't been drinking the night before. I don't recommend doing another night of drinking.

Maddy: [00:14:48] Really impressed. 

Sophie: [00:14:50] But I just did it sitting in bed with a coffee and I just looked at a couple of things. It wasn't. It's not strenuous, but it's good to. And then I just jotted them down in my phone. So, you know, a typical night out when you're having dinner, it's actually probably if you're going to go out for drinks afterwards, sometimes it. Is around that over $100 mark just for one dinar. Yeah, because you're out and about, you get an Uber, you forget like it's not just, you know, you get an Uber, you like blah blah, blah. Like, it's just. Just shut them down and get a general sense. And then I've made it easy for you because sometimes it's just Hodges stocks. You don't know where to start. And I've got a template that we share in our Facebook group. 

Maddy: [00:15:27] Maybe I'll vlog this experience. 

Sophie: [00:15:29] I would love that you can tell us how much you spend on the weekend. Let's get real. I'm stressed to real day. All right. I actually got a quick question before we end. Yeah. If someone asked you, like, how much do you spend a month on your fund fund, like, would you willing to willingly tell them? 

Maddy: [00:15:48] I genuinely think I don't I have no concept of what the answer to that question is, which is why I need to do this exercise. 

Sophie: [00:15:57] But if you looked. 

Maddy: [00:15:57] At it right.

Sophie: [00:15:58] And you found out what it was.

Maddy: [00:16:00] I think so, yeah. I think I mean, it depends on the past news amongst my friends. I very actively try and talk about money. Yeah, because I think it's something that we can learn so much from each other. Yeah. Hence why we do this. 

Sophie: [00:16:16] But no, of course. Of course. 

Maddy: [00:16:19] But yeah, I try and be as open as I can with things like that. Yeah. 

Sophie: [00:16:23] Because I'll just note that when I looked at mine, I was kind of embarrassed about what I spent. Yeah. And that's why I kind of want to change some of my habits and invest in a bad way. I just think I. I was like, Wow, I spend probably way too much on things. And it got me thinking like, what would I tell? Like, not sounds? Which she would. Would I tell anyone? It's not like, you know, I think, but I know I know it, man. 

Maddy: [00:16:45] It just goes back to like, we are so private about money. Like we do this podcast every way. Can we talk about investing? But like generally speaking in society, we are so private about money. Yeah. 

Sophie: [00:16:55] Like, and after all these days it's $20 before. 

Maddy: [00:16:57] Yeah, exactly. Why that's so interesting. Okay, that is way too done. We have identified habits, our money ins and outs. We have talked about setting a budget, a financial plan. 

Sophie: [00:17:11] A friend. 

Maddy: [00:17:13] As we mentioned last week, one of the best things to do is get a friend involved in this experience with you. In fact, it makes it so much easier if you are accountable, you can share your experiences like I'm going to with you guys. So send this episode to a friend if you enjoyed it. 

Sophie: [00:17:30] And follow for more tips and tricks on our Instagram page at why it's a podcast. It's the same tag for TikTok.

Maddy: [00:17:38] And any questions or any thoughts on budgeting we'd love to hear. It will be popping the template that Sophie's made into our investing into our investing into our Facebook group YIGC Investing podcast discussion group. 

Sophie: [00:17:52] Otherwise you will hear us next week for number three of Feb and things to do in Feb.