BUDGETING BLUE$

With a lot of people being a bit “cash strapped” at the moment, due to the “downturn”, here are some little tips for setting a budget.

Yes, we know, it’s a hard thing to budget, but sticking to a good (and realistic) budget is sort of like eating healthy, or doing exercise. Some people find it easy; some find it a real chore.

Do you really need a budget?
If your income covers your expenses – and includes some (satisfactory) savings – then arguably you do not need a budget.

Remember however, to plan for expensive items, such as holidays and cars. It is interesting to note that studies have shown that those people that pay for expensive items from savings, rather than from borrowings, will save THOUSANDS of dollars in interest. (See panel “Two ways to buy a car” ). So, if you are in this category, while it is not imperative that you set a budget, you will still do yourself a big favour by budgeting at some level.

How much record keeping is necessary?
The numbers don’t need to be exact, but at least once a month it would be advisable to calculate you’re spending and note it down to see if you are close to your budget. See where you have overspent, and ask yourself – “did I really need or want that – or as much as that?

If you can identify some unnecessary spending and can cut back – it is a great start towards improving your financial well being. And just think, sometimes you can cut back spending on things that also harms your health – such as smoking, drinking or eating takeaways. That way you are killing two birds with one stone and you will feel really virtuous about your saving.

Can everyone cut their spending?
Of course. Just think of how life was a few years ago, when you got on happily without may items that we now consider necessities. Its all about expectations, and maybe lowering (or altering) some of yours! If you are spending to keep up with your friends, consider if your friends really notice, and if they do, are they really friends?

How can you save easily?
The most painless way is to have an automatic payment transferring a set amount to a savings account. Set the payment up to go out on the day your wages goes in – start with a small amount. If your income rises, increase the savings by at least half of the increase. If you receive a bonus or lump sum, try to put half into your savings and spend the rest.

What are the secrets to setting budgeting goals?

• Make your goals very specific (e.g. pay off credit card in 6 months, have $10,000 for a family holiday by next March etc…)
• Break down big goals into small chunks. For example, if you want to save $30,000 over a year, the goal is to save $2500 every month.
• Involve others – discuss your goals with friends or family, to ensure your goals are realistic. Talking to others also puts pressure on you to keep to your goals.
• Write your goals down – and re-visit regularly.

What if I fail?
Don’t be too hard on yourself. If you miss a goal one month, don’t try and make up for it in the second month, unless it’s that easy!

If you are consistently not meeting a goal, you need to revise the goal so it is more achievable.

And be flexible! Circumstances change – you will know if you are being realistic about changing a goal or if you are just finding excuses. If it’s the latter, think about who you are cheating…

Do we need emergency money?
Yes, it’s a good idea to keep some money slightly out of reach that you can call on in emergencies. It’s a good idea to have this money in a 60 day term deposit or on a revolving credit mortgage account. Making it a little more work to get to it, often stops you using it all together!