How’s your budget? Surplus or Deficit?
Each year in early May, the Treasurer delivers the Federal Budget and many people across Australia listen intently. The Budget tells us how the government intends to spend its revenue in the coming year, whether it can afford to give us tax cuts and whether it expects to spend more (deficit) or less (surplus) than it receives.
Budgets are also important on a personal level, especially when living costs are rising. So it’s worth having a look at how we’ll cope with the increasing cost of living.
Save More Or Spend Less?
Is it easier to save more, or to spend less? They might sound like the same thing. After all, saving is what we do with whatever’s left over after spending, isn’t it?
Well, not quite. You see, it’s easy for spending to get out of control, and many people actually find it easier to focus on reducing their spending than saving towards a goal.
Take Control
In order to get your spending under control you need to know exactly what your income is and exactly where the money goes. Start by keeping track of everything you spend, and what you spend it on. Split that into categories based on necessity. Things like mortgage repayments, utilities and essential food obviously go in the ‘must spend’ group. Some things will be ‘optional but important’, and others will fit into the ‘frivolous junk’ category. There are many free budgeting tools available, such as FIDO Budget Planning on www.fido.asic.gov.au.
Do I Really Need This?
After a few weeks, you’ll have an idea of where your money is going. Then it’s time to start asking yourself a couple of questions:
- Do I need to spend this much on this category?
- When I over-spend, what can I do to prevent it happening again?
It’s worth remembering that every year in Australia we spend billions of dollars on food we don’t eat, clothes we never wear and services we don’t use. So for many people, gaining control over spending doesn’t mean ‘doing without’. It just means being sensible about spending. There’s lots of fun to be had for free, and you can even turn a ‘thrift campaign’ into a hobby.
Draw up a budget and stick to it
Recording every purchase while you get started on your budget can be an interesting exercise. Now that you have worked out where your money is going and what you can cut down on, make sure you draw up a budget so that you stick to your plan. At the end of every month, add up all of your purchases and compare them to your budget. It takes a little time, but it’s well worth it.
Pay Yourself First
It’s a simple concept, yet very effective. Before you even get a chance to spend your money, take a small portion out of your bank account the exact same day your regular pay is deposited. Over 10-20 years of working, 5-10% really adds up. Particularly if you invest well for compounded growth. Read this article, Pay Yourself First, to learn more about how this simple idea could set you up for life.
By doing this, you’re forcing yourself to live within your budget – you have to live on what’s left over. It’s remarkable what you can do when you have to.
Watching Debt
Make a list of your debts and organise them by the annual applicable interest rate. Those with the highest rates (most likely your credit cards) should be paid off first, especially as the debt is not tax-deductible. It rarely makes financial sense to invest money while you are paying credit card interest of up to 19% pa.
Pay off credit cards within the interest-free period to avoid high interest costs. If that’s not possible, investigate consolidating high-interest debt into home loans or other lower cost loans. When borrowing, make sure you leave a ‘comfort zone’, to ensure you can meet your commitments.
Have you had a mortgage check-up lately?
Like all things, mortgage products are subject to change. If you are more than a couple of years into your mortgage, it is definitely time for a check-up. Speak to your bank or mortgage adviser to see if you are getting the best interest rate they can offer. You might be very surprised at the deals lenders are prepared to do to keep your business.
It’s not uncommon for different interest rates to be offered to customers within the same mortgage product, depending on when the loan was established. You may also be able to switch to a similar product that has fewer features, and therefore lower fees, than your current mortgage product. Just by speaking to your bank or mortgage adviser, you could get a lower interest rate — and save more of your hard-earned cash!
Have a pantry challenge meal at least one night a week
Have you looked deep into your kitchen pantry lately? At least one night a week gather the other members of your household together to get creative. Brainstorm how to use some of the existing ingredients from your pantry and fridge (those that are still edible!) in new and different ways. Even if this exercise cuts your weekly grocery bill by $20, that’s $1040 a year saved.
Convert trash to treasure
Everyone has old clothing or appliances they no longer use lurking in the back of their cupboards. One easy way to create cash is by holding a garage sale or listing unused items on an online auction site such as eBay.
Alternatively, why not check out if there are any ‘swap meets’ operating in your local area? Essentially this involves collecting a selection of goods based on a particular theme and swapping them for clean, well-cared for goods that others no longer want or need. Swap meets operate across Australia for things like clothing for babies, kids and teenagers, toys, women’s fashion, and “men’s shed” items. Check with your local council or community group for swap meets in your area.
Switch to save
When was the last time you compared costs on your home/health/car insurance, phone plans, gas and electricity? With increased competition in each of these sectors there are myriad services to choose from. By shopping around, comparing and negotiating a better deal you could save significant dollars from your monthly budget.
Be organised!
Most people are amazed at how many gifts for family and friends they buy each year, often at the last minute. By establishing a gift list and allocating a set budget for each recipient well ahead of time, you can progressively buy gifts at sales during the year. This will certainly help your cash flow and circumvent overspending by avoiding that last minute rush. The only difficult thing can be remembering where you hid them!
Supercharge your Savings
Once you get in control of your finances you should consider investing to supercharge your savings. Invest in a managed fund like Excela's Accelerator Fund can potentially generate more income for you than simply leaving your money in the bank. Learn about investing in Accelerator today.
What can I do next?