Effie Zahos is one of Australia’s leading personal finance commentators with over two decades of experience in consumer finance topics including banking, finance and property. She has a knack for making money matters simple. Effie shares her top budgeting tips and financial advice to adjust finances The Healthy Mom.
It’s never been a more expensive time to be alive! With another interest rate hike for mortgage holders, a rental crisis and expensive petrol, electricity and food, it really is a time for some practical financial top tips.
As the cost of living continues to rise, inflationary pressures are expected to continue for some time to come. Aussies are now looking for ways to take back control. The good news is that you can with a little planning. As the saying goes, ‘you can’t control the wind, but you can adjust your sails.’ And the best tool you have when it comes to customizing your sails is the humble household budget. No one really teaches you how to set up a budget, let alone manage one.
It is expected that you just know how to do it. I actually cover the basics of budgeting in my book From Converse to Louboutins: A Real Girl’s Guide to Money. First, you have to look back before you can move forward. Print your online bank statements and mark off your expenses.
What you are looking for here is:
- Did you overspend in some categories?
- Do you need to review some of your household bills?
- Is your spending in line with your goals?
- Do you have too many discretionary “tap and go” purchases?
This should give you a good idea of where your money is going. From here you will be able to group your costs into a formula.
Set your formula
There’s no shortage of formulas to help you manage your budget, including paying your bills on time and being able to take those much-needed vacations. A popular option is the 70:20:10 plan. Here’s how it works. Divide your money between:
- 70% for everyday living expenses (rent or mortgage, transport, clothes, food and utilities).
- 20% for savings (don’t save)
- 10% for extravagance.
Then set up some buckets. Instead of putting your “everyday life” expenses in a single bucket, for example, open several buckets (accounts) and give each of them a nickname. You might have one account for school fees, another for household bills and so on. The same goes for savings. The 20% can be broken down further between savings buckets – 5% can go to your rainy day bucket, 10% to your vacation bucket and 5% to the “go ahead” bucket.
Using buckets within buckets makes it easier to achieve multiple goals. You can assign a set amount to each bucket, track your progress and refine your budget for each target. Choose fee-free online savings accounts with a healthy ongoing rate rather than a short-term introductory rate, and you can’t lose.
Can you cut costs?
Chances are there are a handful regular accounts wolfing down your pay packet. Were you guilty of adding a few too many streaming services during lockdown? Maybe you can see if you can get a better deal or not, or maybe give a specific service the movie.
There are many simple steps you can take to reduce your expenses. Big ticket items like your home loan are where the big savings are, but even small savings can add up.
Can you earn more?
Don’t neglect your income. When it comes to making extra cash, the sharing economy offers many opportunities. You might decide to rent out your spare room, car share or pet sit to boost the money coming in.
Love you Super
There is a huge gap between the pension savings of Australian men and women. As women tend to live longer, it is even more important for us to make sure we have a comfortable retirement. One way to find out how you’re tracking is to use the online Super Balance Detective on the SuperGuru website.
Enter your date of birth, and the calculator shows how much you need in super today to reach the ASFA Comfortable Standard balance by age 67. This shows that a 35-year-old should currently have around $93,000 in super.
Otherwise, jump to the Retirement Planner on the MoneySmart website. It shows you’re likely income in retirement based on your super balance plus any age pension payments. Whichever option you use, if your balance is looking a little thin, it’s never too late to grow your super through salary sacrifice, voluntary contributions or government contributions. It can make a huge difference.
Let’s say a 35-year-old woman earns $50,000 annually and has the average super balance for a woman her age of $69,300. By adding just $1 extra to her super every day – that’s $30 a month, she could accumulate an additional $148,389 in super by age 67.
Go to Moneysmart’s online super calculator to see how a few extra dollars added to your super can make a difference.
There are ways you can improve your super even if you’re not working. Cashback sites like Super-Rewards pay your cash back directly into your super fund just by shopping on their platform.
How to save $580 a month
One of the easiest ways to get some savings back is to look after you regular household bills – you can save as much as $580 per week by switching from average payments to the cheapest in the market. While the cheapest may not always be the best, it gives you a good idea of how much savings can be made by regularly reviewing your household bills.
Top budgeting tips and money rules to live by:
It’s not what you earn that counts; it’s what you spend!
When you get a raise, sometimes it’s a case of the more you earn, the more you spend, which then leads us to spend more on products and services, which in turn forces us to earn even more. It’s a vicious cycle that most of us don’t even realize we’re in.
Detox your finances
Just as an organized home has a place for everything, so should every dollar you earn. The bucket system is a simple strategy to help clean up your finances. There is no shortage of budgeting formulas to follow, and a popular option is the 70:20:10 plan. Another is the 60:40 budget plan.
Put your savings on autopilot
Pay yourself first. Set up regular automatic direct debits from your everyday account into your savings. Time the transfers to coincide with paydays. Always treat savings as an account – it can’t be missed!
Budgets are not set in stone
Some people don’t budget and are financially successful, while others continue to live paycheck to paycheck due to their circumstances. If you’re going to budget, you need to be honest with yourself about all those hairdresser appointments. There’s no point in making a budget that doesn’t reflect your life.
If you are going to follow a budget, it is important that you have an emergency fund attached to it. Otherwise, you are setting yourself up for failure.
Work out what makes you tick
Why do some people save better than others? How are advertisers tricking us with “mid-price” options? Understanding your financial psychology can save you money. Take the time to figure out why you do what you do.
Don’t spend mindlessly
Sleep on all impulse purchases for at least one night.
Identify your financial stressors and make a plan
Try not to overwhelm yourself. Make a list of all the money problems you’re having and focus on managing one issue at a time so you don’t get overwhelmed.
Keep creditors in the loop
Call your creditors if you are experiencing financial hardship and let them know how you plan to address the issues. Many companies have hardship officers who can assess your situation and work out what help and strategy is available.
Build a cash cushion
A cash cushion is strictly emergency-only finances. Think about the loss of a job, medical illness or an unexpected financial curve ball.
The idea is that you have enough money in your cushion account to not only deal with the crisis but, in the event of a job loss, to cover your absolute necessities (food, shelter, clothes – designer shoes don’t count) until you find work again. You should aim to have a few thousand dollars in there to support you through this period.
It can take a while to build up a cushion account, and if you have a mortgage, it might pay to keep your savings there. For example, you have a $400,000 mortgage at 3.37%, and you can afford to save $50 a week. If you pop it into your home loan’s redraw or offset facility, you’ll not only have $36,000 in the account after 15 years, but according to Canstar analysis, you’ll save around $10,700 in interest on your home loan.
If you don’t know where to start, call the toll free National Debt Helpline on 1800 007 007. National Debt Helpline is a not-for-profit service that helps people tackle their debt problems. We are not a lender, and we do not ‘sell’ anything or make money off of you. Our professional financial advisers offer a free, independent and confidential service.
For more great family budgeting tips, check out The Healthy Mummy Budget Hub your way for budget friendly tips, tricks and offers from The Healthy Mummy Budget Squad.
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