Dave Ramsay.
Budgeting. You know you should be doing it, but you probably aren’t. Why? Because it can be confronting to see where your money goes each month.
As financial advisers, we are asked by many clients to help with getting their budget back on track. It may be that they are finding they have no surplus funds at the end of each pay cycle, or they want to save for a large item such as a trip or major renovation and want to avoid needing to borrow.
Did you know?
Less than half of Australians have a three-to-five-year financial plan, with around 1 in 4 having a long-term financial plan. Almost 1 in 5 Australians did not save any money over the last 6 months, a consistent trend over the past 4 years. Almost one quarter (24%) of those on an income of less than $55,000 per annum were unable to save money. Also 12% report never seeming to have enough money to cover their expenses.
The Australian Bureau of Statistics Household Expenditure Survey, 2015-16 estimated that the average household in NSW spends $1,525 per week. To be an average, some families will spend more, some less. The trick is to ensure that your family is spending less than you bring home. This can be a challenge, balancing the books always is.
ABS figures revealed in 1975, the largest contributors to household spending were food (20%), transport (16%) and housing (13%). In 2020, housing is now at the top of that list (20%), followed by food (17%) and transport (15%) respectively.
A report by Deloitte highlighted that around 37% of Aussies were concerned about their ability to cover expenses, with more than 50% indicating that they expected to pay even more on housing and energy costs going forward.
The Budget Tin
Electronic Banking
With electronic banking, particularly during this pandemic where cash is not being used, along with direct debits for insurance and other bills, it can be harder to see what is going in and out and make sure it is all covered.
Currently, around 1 in 10 Australians reported having paid the minimum amount due on their credit card in the last 6 months, with 4% reporting having missed payments. Over 1 in 3 Australians (32%) with a home loan paid the minimum amount on the loan, with 2% indicating they had missed payments. People who paid some money in addition to the minimum amount due on their mortgage was steady (53%).
Budget
Most online banking platforms have a budget facility. It tracks your spending for you, the app knows who the vendors are so, apart from cash withdrawals, it knows where your money goes. It is a handy tool to see, in real time, where you are spending money, as opposed to how much you think you are spending.
If you do not use electronic banking, you can download a budget tool from the Money Smart website this will also show you where you spend money.
50-20-30 rule
- 50% for essentials: Rent/other housing costs, groceries, petrol etc.
- 20% for savings: Savings accounts, retirement contributions, other loans, credit card payments etc.
- 30% for everything else: Non-essential expenses like clothing, restaurants, monthly streaming subscriptions, gyms etc.
While it might be easy to remember, the rule isn’t always easy to live by. When it comes to budgets, one size doesn’t fit all. The first step is to work out where you are spending money and then see where you could be saving /cutting costs to get back in the black or get you to that savings goal faster.
If you are still wondering where the money goes, try the budget tin, or perhaps an envelope with cash for each of your categories for a few months and see which envelopes are running out.
We would be happy to help you get your books balanced or save for your goal.
Contact us and we can help get your budget under control!
