Budgets, plans and the 28-day trap

A budget is a plan for your money before you spend it. It sounds boring, but it is really about getting the things that matter most to you, instead of wondering where your money went.

Four steps to a budget

A need is something you must have to live, learn and stay safe. A want is something nice to have. People don't always agree on which is which, and that is fine, as long as you decide on purpose.

Compare over the same time

Plans come in weeks, fortnights, months and '28 days', which makes them hard to compare. Turn everything into a yearly cost. There are 52 weeks and 12 months in a year, but 13 lots of 28 days (52 ÷ 4 = 13). So a $20 plan every 28 days costs $260 a year, while a $22 plan every month costs $264. They look quite different on the sign, but they cost almost the same over a year.

Buy now, pay later

'Pay later' services split a purchase into four payments, usually a quarter up front and the rest every fortnight. If every payment is on time, there is often no extra cost. But it is still a debt. Miss a payment and late fees are added, and having several at once can swallow a whole budget. Sorted, New Zealand's free money guide, suggests having only one at a time and setting reminders for every payment.

The best budgets are honest and flexible. Check yours every few weeks, and change it when your life changes.