Creating a budget and allocating funds for investments are essential steps in achieving financial stability and growth. This combined approach helps you manage your money effectively, ensuring that you can meet your current needs while planning for future financial security.

Here’s a beginner’s guide on how to master your money.

Step 1: Understand your income and expenses

The first step in budgeting is to have a clear understanding of your income and expenses. Many people don’t want to create a budget, but we can’t change what we can’t measure. Track your monthly earnings from all sources and list your fixed and variable expenses. Fixed expenses include rent or mortgage payments, utilities, and insurance, while variable expenses cover groceries, entertainment, and dining out.

Step 2: Choose a budgeting method

Several budgeting methods can help you manage your finances. Here are a few that have worked for Girls That Invest community members:

  • 50/30/20 rule: Allocate 50% of your income to necessities, 30% to discretionary expenses, and 20% to savings and investments. This simple formula ensures that a portion of your income consistently goes towards building wealth.
  • Zero-based budgeting: Assign every dollar of your income a specific job, ensuring that your income minus expenses equals zero at the end of the month. This method provides detailed control over your finances.
  • Envelope system: Allocate cash for different spending categories into separate envelopes. Once the money in an envelope is gone, you can’t spend any more in that category until the next month. This approach helps prevent overspending.

Step 3: Create a rainy-day fund

Before investing, ensure you have a rainy-day fund which could cover 3-6 months of living expenses. This fund should cover essential costs like your mortgage, utilities, and food. Keep this fund in a high interest saving account to benefit from higher interest rates.

Step 4: Determine your risk profile

Understanding your risk profile is crucial for making informed investment decisions. Your risk profile depends on your age, financial goals, investment horizon, and risk tolerance. Knowing this will guide your asset allocation and help you select appropriate investments.

Step 5: Allocate your investments

When determining your asset allocation, it's important to consider your risk tolerance and investment time horizon. Asset allocation involves balancing different asset classes, such as shares, bonds, and cash, within your portfolio to align with your financial goals.

A general guideline suggests that younger investors might lean more heavily toward shares, while those closer to retirement may prefer a more conservative mix. For example, someone in their 20s might choose a higher proportion of shares, while someone in their 40s or beyond might opt for a more balanced approach.

Ultimately, the right allocation depends on your personal circumstances and investment objectives.

Step 6: Automate your investments

Automating your investments can help you stay consistent and disciplined. Set up automatic transfers from your bank account to your investment accounts. This way, a portion of your income is regularly invested without needing to remember or make manual transfers.

Step 7: Review your portfolio

It's important to regularly check your investments to make sure they're still on track with your goals. Over time, the value of different investments can change, which might make your original plan unbalanced. By adjusting your investments now and then, you can keep everything in line with what you’re comfortable with and what you want to achieve.

Pairing a solid budget with a smart investment plan can help you manage your money and build a strong financial future. Remember, staying consistent and disciplined is key to success. 


To learn more about investing, go to Investing in the CommBank app.

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