Friday, 8 February 2013

My 2013 Budget Part Two – My allocation of funds

In terms of big scale categories, I use two for my budget: spending, and wealth building. One of these means your money has gone away and you’ll never see it again (I sure hope you kissed it goodbye as it flew out your fingers!) and the other means it’s busy making new friends in the form of more dollars, who’ll be your close companions for many years to come.

Why don’t I use the needs, wants, savings categories? Well to me it doesn’t matter all that much whether you’re spending on groceries (a need) or a new dress (a want) – that money is gone, baby, gone. Likewise, the difference between planting money in a dedicated savings account, investing it in an index fund or using it to pay down the mortgage faster isn’t a big deal to me – those are all wealth building activities.

I use these two categories as a way to get an accurate snapshot of how my money is travelling. So in a nutshell, my budget for 2013 is simply:
Spending – 34%
Wealth building – 66%.

But surely I develop my budget in more detail than that, right?

Yep. My categories are as follows:

Wealth Building
Mortgage – technically this is the “rent” I pay Perfect Boyfriend for living in our apartment, the Bakelair, which he bought long before he met me. Why do I pay him rent? We’ll combine finances one day, but for now we’ve got separate finances with shared financial plans and very similar attitudes to money. For as long as our finances remain separate, the apartment continues to be his asset/liability, and if we were to break up, we both understand that I would have no claim to it.
However, he uses my “rent” payment as additional payment towards the principal of the mortgage. So it’s growing his equity, and some day that equity will represent part of the deposit for the family home we buy. As such, paying my “rent” is definitely a wealth building activity for me.
Savings – I’m still building up my savings for the future, though I know the day will come that I have to invest instead of holding my money in a savings account. For now, I’m getting 5% interest and I know the money will be there when I need it.

Groceries – food, toiletries, laundry detergent, etc. Pretty self-explanatory, right?
Bills – some of these bills are for needs (electricity) and some are for wants (my mobile phone). But they’re all bills.
Discretionary – the category that allows me to have a social life and look so darn pretty! This covers clothes (technically a need, but I spend a lot more than I could so to me that’s discretionary), entertainment, eating out, dates, presents…
Buffer – I’m in two minds about this category. My plan is to build up this money in my regular bank account, then use it for odd things. Like the holiday I take every year with Perfect Boyfriend – I don’t see the point of having a separate account / tracking my savings for one small holiday. Last year I used the money that built up in my account as extra savings, transferring it whenever the amount got over a certain point. That’s part of my plan for this year, too (and I won’t reach my goal of saving 45% of my income without a little bit of help from the buffer!). The buffer money is also there to take advantage of opportunities without having to transfer money out of my savings account.

Another one of my 'begonia babies' - plants are one of the many things I spend my discretionary budget on.
The breakdown of where my money will go:
Mortgage 22%
Savings 44%
Groceries 9%
Bills 9%
Discretionary 13%
Buffer 3%
I had to check this twice to make sure it adds up to 100%!

There are improvements to be made in some categories (I’m determined to get the “groceries” budget at or below 7%) but overall I’m happy with this budget.
Can you see any areas for improvement? Do you think the "buffer" category is a bad idea?


  1. that is amazing that you can save such a large percentage of your income!! The most my husband and I ever got to was 20% (after-tax) and we were living in a shack (seriously).
    What savings account gives you 5%???? ours is like 1% or less right now

    1. Thanks :-) it's taken me a long time to get to this savings rate.

      Interest rates are a lot higher in Australia! So I get 5% on my savings, but mortgage interest rates are about 6-7% so it's not entirely a good thing.

  2. I admire you for having such a solid financial plan and following through. I think that you need to increase what you put in for the buffer category though. I'm not sure what health plans you're on, but costs of health care can be unpredictable and not all situations are covered by health cards or insurance. It'll be good if you can have more in the buffer savings just in case a need like that arises.