Jamie McIntyre - April 21, 2016

Whilst debt is not always a dirty word, I find too many of my younger clients are ignoring the bad debt they have - credit card debt that is half their salary, personal loans etc - and kidding themselves into thinking it’s not an issue. They fail to deal with their budgeting issues and too often, fail to take control of their finances.

To really understand your finances and identify any changes you may need to make, you need to assess for yourself the money you spend. AMP's budget planner is a handy tool and a great first step to open your eyes as to where your money goes. To get a really clear picture of where your money goes, the most realistic way of getting the full picture this is to go through your bank statements over a 1-3 period and take note of ALL your expenses.

Rent, mortgage repayment, bills, food, petrol, parking, public transport, nights out etc. Take note of EVERYTHING…

Once you have completed all the steps of budget planner you will see at a high level the money you spend against your income.

Now it’s time to get real… Did you really calculate everything you spend? Every coffee, every snack, every night out… Every single dollar you spend???

Unlikely!

This is one area where most of my clients like to look at their situation on a good week… let me tell you that your good weeks aren’t where you’re going wrong. There’s a huge different between punching in your numbers into a budget planner and then really looking at your finances to understand what changes need to be made.

The bridge between understanding the money you spend and finding room for potential savings is looking at your day-to-day habits. You need to consider your essential expenses against your non-essential expenses. Yes, you need to pay your mortgage or rent every month. Yes, you need to eat to survive, but do you need to buy a coffee every day? Do you need to buy breakfast and/or lunch every day? What do you generally do for dinner; how often to you buy take away or eat out? How much does this really cost you a week, a month, a year? By simply assigning a cost restriction to each meal you will quickly see the changes you need to make to your lifestyle to get where you want to be.

A young client of mine recently took herself from being in $22,000 of credit card debt, struggling to see how an escape of this debt cycle to be debt free within 18 months and saving $1500 a month. She attributes her budgeting success to setting a tight, realistic budget that identified EVERY cent that she spent and sticking to it every day. To this end she knew that every day she could only spend $25 on food – for all meals. So if she knew the cost of her breakfast was less then $5 and if she bought lunch she could only spend $10, leaving her another $10 for dinner.

Whilst this probably sounds drastic to you now, sometimes your budgeting needs to start this way. People are often surprised by how much they can save by making the smallest of changes.

Commit to your budget – tell people

Another thing to consider if you are looking to set a budget - for whatever reason or goal - is let those close to you know that you’re making a change in your spending. You don’t need to let them know the full extent of your financial situation, but by letting them know that you’re changing some of your spending habits you will find it easier to stick to your budget. People close to you may also help you to keep to account. You’ll find it easier to say no to nights out every weekend or a few nights a week, to avoiding shopping sprees with friends and spending money on those non-essentials that send your budget into chaos.

Review and revise

Budgets at time need flexibility – if your committed to achieving your financial goal, whether it be getting out of debt or saving for something special, you need to frequently review your budget. You may want to review or revise your budget each payday to note your expected spending and to highlight any savings you can make. You may choose to put your savings aside straight away.

The most important thing about your budget is to stick to it – and keep at it – one bad week can be overcome and doesn’t mean you can’t achieve what you want to.

If you need help with your personal financial plan, call budgeting expert Jamie McIntyre at MAC Financial today.