This is another type of budget that my family has been using for over 10 years and it has worked for us.

It is still a budget, however takes minimal effort once set up. It can be reviewed on a regular basis and in fact should be reviewed whenever there is a change to an area of income or expense. This could be:

-  A pay rise

-  Repaying a loan

Unlike traditional budgets where you are expected to record everything you spend and monitor the spending for each area. The automatic budget works in reverse. From your cash diary you have hopefully found many small items that add up that you feel you can comfortably do without. The key now is to nominate a percentage of your net income that will either be used for extra debt reduction or saving. We suggest you start with 10% of your net income. The rest is to go towards bills/expenses and play money.

How it works is this, from your regular income which should automatically go into a Bank account, pay a predetermined amount into:

A separate Bank Account / Credit Card for expenses.  

Separate Bank Account for each spouse (play money)  

The rest stays in the same Bank account to cover loan repayments/invest and must not be touched for anything else. This account must not be able to be accessed via ATM card. This amount must be sufficient for normal loan repayments plus a further 10% of net income for further debt reduction or savings.   

The 10% is the key that will turn around your long term financial prospects.

The beauty of this system is that from the previous work on cash diaries, latte factor and reviewing all expenses you have a much greater appreciation of where your money goes. The expenses account should not only cover items like utilities, phone, rates, but others like Birthday and Christmas presents, clothes, etc.

Now you are more aware of where your money goes and have a system that you have confidence in. You should find you will spend less on doodads. What are doodads you say? Have a look in your garage, shed, spare cupboards for items that you have previously bought and rarely use if at all. These are often items sold on garage sales.

The setting of an amount (play money) for spouses to live off is crucial. It gives responsibility for both partners.

The most important point here is to continually review your spending habits. This can take the form of doing a cash diary for a week every 6 months. It could consist of reviewing the change in income and known expenses and adjusting your automatic budget. If you are still struggling to successfully manage your money then you must spend more time on it.

If you are a little skeptical that you will be able to come up with the 10% have a read of the latte factor and review your cash diary.

What do I do with this extra amount being saved? If you have borrowings please go to the handling debt section and in particular the Debtonator while those fortunate enough to have no debt or debt under control go to the savings section.