If youre looking to save for your first home then one of the biggest challenges youll encounter is finding the extra money to put into your savings account. For many people this is difficult only because they dont know where they are spending their money and how they can cut down on their expenses.
According to the Australian Securities and Investment Commission (ASIC), in 2012 the average Australian household was spending approximately $69,166 per year on living costs. This equated to $1,290 per week. But of the people surveyed, most didnt know exactly what they were spending their money on. However, if these people had of been aware of where they were spending their money to, they may have saved themselves thousands per year, which, in turn, could have seen them break the habit of living from pay-to-pay and never saving money.
Why Should I Design a Budget?
Your budget will not only open your eyes to where you are spending money to, but you may also find that youre spending too much on luxury items, such as entertainment and dining-out, or on insurance for your car, or health and life insurance for yourself. By designing a budget youll identify exactly where you can save, and by how much. But rather than guessing what you spend where, and then estimating what you can save, sit down and actually work out what you spend your money on. Then you can design yourself a weekly, fortnightly or monthly budget, and stick to it.
How to Design Your Budget
Grab a pen and paper or set-up a spreadsheet on your computer. Draw-up two columns, one for income coming in, and the other for expenses or money going out.
Income coming in includes wages, child support payments, and any government allowances, plus any interest earned on term deposits or shares. This also includes money earned from any rental property, if you have any, after expenses have been deducted. Once youve written down all of your income, tally-up the column.
In the expense column list your weekly spending, this includes food shopping, school fees, car insurance, rego, telephone, gas and electricity, life insurance and any other costs such as lunches, buying coffee and going out to dinner. By listing all of your weekly expenses you will then be able to visually see where you are spending your money to and just how much youre spending. When youve written down all of your expenses, total-up the column.
If you find that some of your expenses are quarterly, such as utility bills, and you want to calculate what these are costing you weekly, then find your utility bills for the last 12-months. Add the total cost of the bills together and then divide by 52 or the total number of weeks in a year. If you want to create a monthly budget then times this figure by 4.
Next look at your expenses column and ask yourself where you can reduce your spending. Are you spending too much on luxury items such as lunches, coffee and entertainment, can you reduce the amount youre spending so you can save more? Are your insurances cost effective? When was the last time you reviewed these and compared these to other products on the market? You may be able to save yourself thousands just by making a few changes to your lifestyle.
Lastly, make some changes to your expenditure column and work out where you can save money. But before you do, there are some guidelines that you need to adhere to.
Budget Building Guidelines
When you design a budget you need to make sure that you follow these rules:
1. Be realistic Include a few luxuries in your budget, as while it would be great to forego all luxuries and knuckle down and save every penny, this is not realistic. We all need to go out and socialise, and enjoy ourselves. So when you design a budget make sure you include at least 1 or 2 monthly treats, and allocate funds to these. Then stick to this budget so you dont overspend and undo all of your hard work.
2. Everything in moderation When you include luxuries in your budget, make sure you can pay for these without using your credit card. If you do have to use credit, at any stage, then make sure that you can pay off what you use within the interest free period so that you dont cost yourself more in the long run. Overall, remember that everything in moderation leads to budgeting success. So if you cannot afford it, then dont do it. Allow yourself to enjoy yourself every now and then, but always spend within your means.
3. Take your time to work out your budget Dont guesstimate what your living expenses are otherwise youll set yourself up for failure. Often tax time is the ideal time to work out your budget as you often have all of the necessary paperwork on hand to accurately workout your costs and income.
4. Review your budget often Life is ever-changing, so while youve worked out your budget now, this may change over time. Therefore, the budget you design today should be for 12-months, unless your lifestyle changes. For instance, if you get a pay rise, then review your budget again. Even if nothing happens in your life then your budget should be reviewed every 12-months.
5. Find a budget planner online If you are finding it difficult to work out how to design your own budget then there are planners online that you can download for free. These will help you to arrange your budget better and will also give you additional tips for budgeting success.
Are you looking to buy a new home? If you said YES, then talk to eChoice before you take out a home loan. We can help you save.
Written by eChoice
Since 1998, eChoice has helped more than 50,000 Australians secure a home loan through its network of over 25 lenders and hundreds of loans. Best of all our service is cost and obligation free!