Budget to save yourself from yourself

The average household spends more than $69,000 a year. Neal Vaughan explores the best ways to manage that.

Wondering why you spend almost everything you earn, living from payday to payday and hardly saving? It could be you're too busy to keep track of your money.

Or you’re refusing the challenge of taking control: the 2014 ANZ Survey of Adult Financial Literacy in Australia, found women aged 28 to 59 years had lower scores than men on financial control, though they were better than men in keeping track of finances. 

Women of this age were more likely to have missed a loan or credit card repayment and also more likely to have been unable to save money in most weeks. Greater discomfort with comparable levels of debt appeared to contribute to women’s lower scores on this index," stated the survey.

In the same year, a study into women and money conducted by RMIT University’s Roslyn Russell and La Trobe University’s Amalia Di lorio found almost 50 per cent of women say they sometimes run out of money completely during the year.

That’s something that investment adviser Michael Flanagan has often seen in his career.

Flanagan, who runs Optimise Wealth Management, says “even successful career women generally end up with lower savings than men and under half the super according to the 2013 Australian Bureau of Statistics’ gender indicators report of median super balances for women aged 45 to 55”.

“A financial health check and creating a monthly budget will help you save more when you’re earning well,” he advises.


Get budgeting

So what is the best way to go about setting up your own budget? The first thing to do is to put some time aside to write down all your expenses and incomes.

You may find that with a little extra care you can trim back your outgoings and save more than you thought, so you can start putting your money to work for tomorrow, not just today.

Primary school teacher Sofija Egic considers herself reasonably careful with money. However, she was surprised how easily having a simple budget with set spending limits, plus a regular direct debit to a separate savings account, helped her put a sizeable amount aside each month.

To be honest, we used to spend without thinking.

Sofija Egic

She has just purchased her first investment property with her partner Sam.

"To be honest, we used to spend without thinking. When you’re both flat-out working, it all seems essential until you actually list it down. We spent a Sunday morning working out a formal budget – a set amount for groceries, a limit on what we spent going out, getting a bus instead of a cab home – that sort of thing."

It may seem a bit dull, but if you go to the Australian Securities and Investments Commission's MoneySmart budget calculator, you can liven things up by downloading the TrackMySpend app.

You can use this app to track your day-to-day spending, which can alert you when you overspend (based on your pre-set budget limits on certain types of purchases).

ANZ's budget planner is a detailed helpful tool for you to figure out your income and expenses and in the long term what you can achieve with your savings.

ANZ’s MoneyMinded hub can take you through the budgeting process, using the MoneySmart tools, to help you feel less stressed about the future.

The big budget picture

Tracking where your money actually goes can make revealing reading. ASIC’s 2012 consumer-spending figures show the average household spends $69,000 a year: Australians splash $78.4 billion a year on their cars, compared to just $2.2 billion on public transport; almost twice as much on gadgets as on fashion; and four times as much on beauty products and services as education.

To budget successfully it's important to make your budget and spending limits realistic. MoneySmart has a range of suggestions for reducing outgoings without driving yourself to the point where you get fed up with the whole thing – a danger that’s highlighted in its advice and tips.

When you set out your budget and savings plan, think about what saving that money will achieve – list your goals.

“The key to successful budget management is to also work out your goals and plans. It's easier to trim spending or be more determined re-negotiating insurances or even your mortgage when you know what those savings will achieve,” Flanagan says.

RMIT's women and money survey found that providing for family was most women’s main financial priority, but as Flanagan points out, women's incomes are most likely to be reduced when they start a family.

“The best way to stay in control is to build savings and investments as soon as you can. So part of your monthly budget should include a regular savings amount.”

He suggests around 10 per cent, paid through a direct debit into a separate investment account. However, as everyone's circumstances are different, it may be worth seeking your own financial advice.

Five steps to successful budgeting

  • Do your own financial health check, listing all your income and expenses, using a tool such as a budget planner.
  • Decide your immediate and longer term financial goals, and consider getting some financial advice to help you do this.
  • Look at how you can trim spending to save more.
  • Set a weekly or monthly budget with spending limits in key areas. Use a diary or the MoneySmart TrackMySpend app to help you stick to these.
  • Set up a direct debit to put your savings into a separate account.

April 2016