Want to learn to love your budget and stick to it? Andrea Sophocleous investigates.
January 27, 2009
Spending money is easy. Saving money seems to be a little harder. However, learning to create a budget – and sticking to it – can mean the difference between struggling financially and financial peace of mind.
Dean Easterby, a financial adviser at Centric Wealth, believes the biggest barrier to sticking to a budget is the pull of modern society’s consumption culture. “Immediate gratification, that idea of ‘I want that plasma TV, and if I can’t afford it I will go into debt to buy it’, is all too common today,” he says.
For most of us, the need for immediate gratification means we often spend more than we earn, thanks to our access to credit and "buy now, pay later" interest free schemes – or, as dubbed by some financial experts, "buy now, worry later".
Figures from the Australian Bureau of Statistics show Australian household savings have been in steady decline for decades. More worryingly, the savings ratio – what is left over once household consumption has been deducted from household disposable income – has been in negative territory since 2002. In other words, we are spending more than we earn, a dangerous equation at a time of rising interest rates and debt.
The answer to emerging from debt is learning to love budgets. Budgeting may get a bad rap, but once you make the transition you’ll never look back, argues Easterby.
The first step in creating a budget is calculating your weekly expenses, including rent or mortgage repayments, transport expenses, utilities, food, clothes, entertainment, credit card repayments and medical expenses. Comparing this list against your weekly income will help you determine your budget.
The goal is to cover your expenses and have money left over which can be put aside as savings. "That’s the only way there can be any savings and repayment of debt effectively," Easterby says.
Online budget tools, available as Excel spreadsheets, can take the pain out of creating your first budget.
Ideally, Easterby suggests setting aside a fixed percentage of your income – 10 or 20 percent – into a high interest savings account, such as BankWest‘s TeleNet Saver or UBank’s USaver, both currently at 5.62 percent p.a.
The savings can be used for extra repayment of debt to help you climb out of the debt quagmire, or a holiday, a car or for investing. The satisfaction of watching your savings grow and being able to buy things outright rather than on credit will help you love budgets. This simple, painless step can turn you from a spender into a saver.