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General
There are numerous specialist books available on the subject of budgeting and professional advice can be sought from financial advisers. Much of the information on this page has come from the booklet 'Budgeting Made Easy', written by Credit Union Services Australia Limited. This booklet is available from the Australian Defence Credit Union (ADCU) http://www.adcu.com.au ext and the Defence Credit Union (DEFCREDIT) http://www.defcredit.com.au ext
Budgeting
A budget is really a simple financial plan that shows individuals or families where their income is being spent. By monitoring the flow of money through your household, it is easier to accomplish your short- and long-term goals and to take some control of your financial future.
Firstly, take some time to draw up a table of income and expenses using the following table as a guide. You may find it easier to calculate on a weekly or monthly basis, don't forget to change the calculations at the end. Be careful not to include items twice that are listed under both 'Fortnightly Expenses' and 'Long Term Expenses' (eg insurance premiums) and amend the table to suit your own particular circumstances.
When you have completed your Budget Sheet, think about these questions:
Does your spending exceed your income?
Look at Total F - if your answer
is negative, then you are spending more than you earn, and now
is the right time to address your spending habits.
How long did you take to think about
each entry?
You probably took longer thinking about discretionary spending
such as entertainment than rent or bills because there is no set pattern to
such spending. It can often be an area where some improvement can be made, simply
by allocating a certain amount per week or month and aiming to spend within
that limit.
How do you use your credit cards?
If you are you relying on credit cards for cash advances to
see you through to the end of the pay period, then you may need to reasses your
spending habits. If overspending on credit cards is a weakness, then consider
lowering the limit to a manageable level. Paying off high-cost purchases over
a long period of time on your credit card is expensive - there may be alternatives
available. Seek the advice of professionals.
There are four aspects to budgeting:
Having a savings plan is an essential part of successful budgeting.
You should aim to set yourself a savings target of 10% of your gross annual income. There are a variety of accounts in a variety of financial institutions to which you can direct your savings. Shop around for the account that best suits your needs and that pays the best interest. You also need to look at things such as accessibility in an emergency, deposit and withdrawal fees, how often interest is paid (the more often the better, due to compounding) and early withdrawal penalties.
If you have not been successful with a savings plan in the past, start with setting yourself a small-value goal that is achievable within three months. At the end of the period, withdraw the cash you need to achieve that goal, but leave any excess to go towards the next goal.
Controlling spending and breaking bad spending habits are two key steps in successful budgeting.
Sorting out your NEEDS from your WANTS may be a good place to start. Needs are the things you require to live a comfortable and healthy life. Budgeting is a tool that enables you to aim for your Wants while managing the day-to-day Needs without undue stress and worry. Make a list of these Wants - they will become your savings goals.
Spend a week or two detailing exactly where your money is being spent - you might be surprised at how much you spend that is not budgeted for. Here are some relatively simple ways to cut down on spending:
Credit cards are a most useful credit tool and can be best used as:
Debit cards are similar to credit cards, but as they access your own funds you are not able to defer payments using this card. However, they are also a useful alternative to carrying large amounts of cash, particularly when travelling and for out-of-hours banking at ATMs. Security of your Personal Identification Number (PIN) is of paramount importance.
While credit cards are a short-term solution to needing an item now and paying for it within a month or so, debt is a longer-term commitment on large value items with a total cost beyond the immediate capacity of your budget. The most common household debt is the mortgage. Financial institutions offer loans as part of their business ie they plan to make money on the deal. You will end up paying much more for the item than the original price - but you have the advantage of using the item while you pay.
In most instances, you will need to have saved at least 10% of the purchase price of a home before you can obtain a loan for the remainder. This is the meeting place of Savings and Debt.
Summary
Take time to work through the budgeting sheet. Once you have assessed the flow of money through your household, decide on an achievable savings plan and set savings goals. Shop around for the savings facility that best suits you and pays the best interest. Monitor your spending habits and the way you manage credit facilities. Do extensive research before committing to loans of any sort. Consider using savings as a way to reduce the cost of loans on high value items.
If you feel you need help to get back on track or wish to confirm or fine tune your financial arrangements, seek the services of a professional financial adviser.