budgeting

Guest Blog: The 3-step budget for achieving financial control

By Riann Umaga-Marshall

 Accountant Riann Umaga-Marshall provides three empowering tips for mastering the arts of household budgeting and saving.

According to a University of Washington study, genetics play a huge part in our attitudes to money: we’re either natural spenders or natural savers. Therefore, budgeting does not come easily to the spender. But the good news is that our natural inclinations can be overcome if we create the budget in such a way that empowers us and gives us the control.

It’s important for spenders to remember that having a budget does not mean, “I can’t.” What it really means is, “I can, but I have to plan for it.”

Yes, you can still go on that two-week holiday in Bali. You can still go out for a fancy dinner with your friends. Just know when those events are going to happen and plan for them in your budget. Or, if you want a bit of room for spontaneity, allow yourself ‘quotas’ and factor them in (e.g. one fancy dinner a month).

By having a budget, you can set aside a bit of extra money each month for more extravagant purchases, while still reaching your savings targets. And this control over your money, and corresponding freedom to spend, can be incredibly empowering.

So, here are three steps for creating an empowering budget:

 

Step 1: Create accountability

Whether it’s with your business or your partner, say, “Okay, we’re going to spend $X each month.” If you’re single, find someone in your life who is good with money—your sister, a friend, or an accountant.

Now here’s the scary part: hand over your bank statements for the past three months. Get your trusted person to look through and be completely honest with you. Did you really need to spend that much on groceries? How many times do you really need to eat out? Sometimes, all it takes is a bit of outside perspective!

 

Step 2: Set the budget

In a budget, there are important things and then there are less important things. First, write down what you need to spend each month: rent or mortgage repayments, utilities, food, transportation, etc. Then give yourself a bit extra for the things you love doing that cost money. Allow yourself a movie night once every couple of weeks, a dinner out, $200 per month set aside for that trip to Bali next year. Whatever it is, plan for it now.

 

The difference between your budgeted expenses and your budgeted income is the amount you are going to save. Write this figure down in your diary. Stick it on the fridge. Whatever you do, don’t forget that golden figure.

 

Step 3: Implement the budget

The actual action of putting away savings isn’t that hard: you get paid and then you put the “golden figure” into your savings account. You did it! You’ve achieved your goal. But the hard part is yet to come.

Now, you’ve actually got to follow your budget for the rest of the month. The reality is, the first month is probably going to be a complete disaster. You might get to the final week and have $10 left for seven days. That’ll feel like a throwback to uni days for some.

The second month will be a bit easier, but still difficult. By the third month, you should have ironed things out. By this time, you will have tweaked your grocery lists so you’re not going over budget. You’re being more conscious around your small transaction decisions. For example, you realised you can’t have that $4 coffee every morning before work so you’re getting up five minutes earlier to brew a pot of plunger coffee.

 

Need help setting your budget? Or want an extra pair of eyes to look over your statements? We can help you with your financial planning, whether it’s personal or for your business.

 

Riann Umagag-Marshall is a managing accountant at IIF Accountants

Are We Too Caught Up On Interest Rates?

Brendon argues that it’s not all about finding the best interest rate.

At Velocity our job is not only to get you the best loan, it’s also to make sure your mortgage is geared to your specific situation in such a way that will have you paying it off faster.

So, on this note, here are a few things to consider:

 

  1. Interest rates aren’t the be-all-and-end-all.

Yes, they matter of course and we will be as competitive as anyone in seeking good rates, however, the difference this makes is only limited.

For example, on a $500k mortgage, a 0.2 per cent difference in interest rates alters the fortnightly repayments by $13.50 a week difference over the life of the loan.

 

2. Smart budgeting can save you bucket loads.

Once you’ve done your budget and you discover you have, let’s say, $75 a week left over after expenses. If you put that $75 a week against a $500k loan you’ll save $100k ($103,596.32 to be precise) and also save six years off your mortgage.

 

3. Maintaining repayments when interest rates drop.

When it comes time to re-fix your loan, let’s say you’re currently paying 5.5 per cent on your $500k loan and your interest rate drops to 4.25 per cent (assuming this is the case for the remainder of your loan). If you keep your repayments the same rather than dropping them as a result of the lower interest rates, then you will save yourself $101,277 in interest, and you will pay off your mortgage seven years earlier. *

 

*Obviously when rates change, you will need to maintain the difference for this to be true.

So, there you go, finding a good interest rate is just one factor to add to the mix of discussion along with smart budgeting and not always opting for the bare minimum when it comes to repayments. As always, we’re more than happy to chat through all these and more options.

 

Brendon Ojala is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.