Making your household dollar go further
You work hard for your money – your money should work hard for you.
What an inspirational nugget of gold … it’s in practically every banking and investment ad, every online get-rich-quick-scheme …as we all know, it’s often easier said than done.
We have commented upon this topic before. See some of the posts listed below:
http://plan2prosper.com.au/articles/2009/09/the-secret-of-slashing-your-budget/
http://plan2prosper.com.au/articles/2006/11/budgeting-its-time-well-spent/
http://plan2prosper.com.au/articles/2007/07/why-planning-works-how-to-get-started/
http://plan2prosper.com.au/articles/2008/01/budgeting-setting-spending-limits/
http://plan2prosper.com.au/articles/2008/02/budgeting-analyse-your-budget-in-a-different-way/
And we’ll comment on it again because making your household dollar go further is one of the most important things that can affect our families.
Money, as we all know, seems to slip through our hands in the shortest possible time, no matter how good our intentions to save. Somehow, the dream of the long awaited holiday, or new car, or paying off the mortgage, seems as far away as ever. The reason is often painfully obvious – people work hard for their money and then ignore the essential step of applying sound financial planning to those hard earned dollars.
Financial planning sounds simple – and to a large degree it is. But too many people ignore it. Most Australian households have no financial plan. Many people believe you need a degree in economics to get your finances in order – but it’s actually a matter of plain old-fashioned common sense.
Saving money, or making your household dollar go further, is often nothing more than planning ahead. You need to know how much you spend, and on what. The realisation this knowledge provides can be confronting and intimidating for many people – but the quicker you attend to it, the quicker you can move on. It’s not an exercise to be taken lightly and there’s nothing to be gained from arguing about past transgressions. Remember that you’re working on the future not the past.
A successful 1st step is to appoint a family Chief Financial Officer (fCFO) to manage the household finances. You can make decisions and prioritise expenses by a family committee or meeting, but someone has to be accountable and control day-day expenses.
Ideally, this role should be rotated between partners and older family members every 3-6 months, so there is a shared understanding that it is not an easy job. There may be days when the fCFO announces there is not enough in the kitty for some small entertainment expense like going to the movies. If another partner or older family member hasn’t been involved in the budget process they’ll say … “WHAT DID YOU DO WITH THE MONEY?” … It’s a good way to start an argument and a bad way to keep a budget. Everyone should be involved in the budget setting process.
Your 1st fCFO may be tasked with monitoring the family’s spending habits for a month before you actually start the budget – this will give you an idea of how much you spend on incidentals, from CDs to pocket money. You will have a clearer picture of what is going out and this will help you all to make more accurate assumptions about your expenses.
Then get all of your bills and receipts together and examine:
- Weekly groceries
- Transport (petrol, train, taxi etc..)
- Car Expenses (insurance, registration, maintenance)
- Mortgage/Rent
- Loan Repayments (Credit Cards, hire purchase, lay buy instalments etc…)
- Entertainment (movies, dinner, gambling, beer, wine)
- Gifts (Birthdays, weddings, special events)
- Sporting Expenses
- Hobbies
- Clothing
The list can be long and can differ for every household. Break down your household expenses into sections and also examine the amount of money each member spends each income period – not to point fingers and say you spent more than me, but just to know where exactly the money comes and goes. If you are paid fortnightly, calculate 2 weeks expenses, if monthly, a month’s expenses. For each pay period you’ll know now what you are spending compared with what you are earning.
In evaluating whether you are spending more than you earn, factor in expenses that arrive at certain times throughout the year – like car registration, insurance, council rates, water or electricity utilities notices.
If your expenses exceed your income, you have tough decisions to make. It’s likely you’ll have to eliminate something from your lifestyle. It’s not pleasant, but it is realistic.
First of all, be rational. If you like a bet on the horses or Friday night footy, don’t vow to stop completely if you know it’s a hollow promise. Instead, as with all family entertainment, give yourself a weekly allowance and stay within that limit.
Creating a budget isn’t difficult – sticking to it can be. Once your budget is organised, review it on a regular basis. Remember there will be unexpected expenses – so expect them. Have a rainy day account to keep that little bit extra aside.
It’ll be hard initially, but like the hair product advert that is stuck in my head reminds me: “It won’t happen overnight, but it will happen!”
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Dan Smith is self employed and is for many families their trusted Financial Planner based in Rockhampton. He has clients in various locations throughout Australia but predominately in Central Queensland and specifically the geographic area encompassed by the Rockhampton Regional Council.