Budget? She’ll be right!
Why budgeting can make a huge difference to your finances7 out of 10 Australians don't budget but why does it matter? Fair Go Finance Managing Director Paul Walshe explains how budgeting can prevent financial shocks and set you up for the future.
State Of The Household Budget Report
Today we’ve released our first research report, ‘State of the Household Budget’ which revealed 7 in 10 Australians don’t have a household budget.
Most banks, accountants, financial advisors and media commentators tell us to keep a household budget to track our income and expenses. Yet, our research found most Aussies use their account balance to manage their money.
Do you make financial decisions based on your account balance?
If you do, you’re effectively living day to day and not putting the steps in place to achieve your financial dreams. It’s easy to think ‘she’ll be right’ if you check your account and see a nice sum of money there. But it gives a false sense of security and can lead to overspending (who hasn’t treated themselves when there’s a bit of extra cash in the bank?), which means you could get stuck if something unexpected occurs. But budgeting is too hard. What can I do? Our research found that people find budgeting too hard or scary, or they think it will take too much time. But budgeting can be simple and we believe these four simple steps will help.
1. Set personal goals
Firstly, set personal goals that are meaningful to you and your family. Think about both short and long term goals. A short-term goal could be buying a new car whereas a long term goal might be saving a deposit to buy a house.
2. Put a plan in place
Once you have a goal, it’s easier to put a plan in place. This plan involves looking at capturing all your income (money in) and expenses (money out) to determine how much money is left over, every week or month. This money can then be put into savings accounts or used to reduce debt.
Or alternatively, if you find that your expenses are greater than your income then you need to identify ways to cut back.
When looking at your expenses, it helps to think about bills as fixed and variable. Fixed expenses are those that stay the same each month, for example rent or car repayments. Variable expenses will change depending on your consumption habits and include groceries, eating out, even utilities like water and gas. It’s easier to make changes to your variable expenses.
3. Track expenses
It’s vitally important to keep a track of your expenses. As our research showed, many Australians pay their bills via direct debit probably because it is easy and convenient to do so.
But it means we’re not really paying attention to where our money is going and we lose track of how much we’re spending, and on what.
Every time a bill comes arrives, examine it carefully for changes in costs. This will help you decide whether you need to change your provider or whether you need to modify your behaviour to save money.
4. Celebrate your successes
Set some mini milestones and reward yourself and your partner when you hit them. Go out for dinner, see a movie, have a night out!
Help and resources
We’ve launched Managed Money to coincide with the release of the findings as we want to help Aussies get to grips with their money. Our team of experts will help you set goals, set up a budget, as well as pay your bills! ASIC’s MoneySmart website also has some great resources and phone apps like Pocketbook can help you track expenses.