Household spending now exceeds earnings
You may have read in the news this week that households are now spending more than they are earning. The household saving ratio which is the ratio of households’ net saving to disposable income — has been shrinking since 2014 – and that’s not sustainable according to the ABC’s business reporter Steven Letts. If you are looking at how to save money, consider getting back to basics – sorting out your budget and cashflow, making a concerted effort to reduce your ‘bad’ debt and put in place a sound bank account structure and savings plan so that you can save for big expenses in the future.
The B Word
Most people we talk to think having a budget is boring. But it doesn’t have to be. The thing about a budget is that it lets you know how much you can spend on the non-discretionary items – like food, clothing, kids’ school costs and investing – and how much you have left over to spend on non-essentials like new clothes or the latest gadget. If you have an insight into your spending habits then purchase decisions can be a lot easier and less stressful and you can work out areas where you can save money.
We suggest that you factor in a certain amount for savings/investing BEFORE you decide how much you have left for discretionary spending. This will ensure that you do save – even if it’s only a small amount each week.
Make your bank accounts work for you
Many people find it easier to set aside money into different bank accounts for different purposes. Groceries, holidays, school expenses, Christmas – whatever it is that is important to you. This is particularly useful if you have a large expense or item that you want to save for over a long period.
Others find this too difficult to manage and mentally segment their bank account. It’s up to you, but it is important to keep in mind the amounts that you need for each expense so that when they come due – whether it’s each week for the groceries, or once a year for the insurance premiums – that there is always money set aside and you don’t have to resort to credit to make the payments.
Do you need some plastic surgery?
Even if you pay off your credit card each month, it has been proven that people spend around 10% more using a credit card than they would if they were paying with cash. If you need to use your credit card to make ends meet, then look back over your budget to see where you can make some savings. We understand that credit cards are convenient, but a debit card (which deducts the payments from cash already in your account) is convenient and isn’t putting you into debt. These days many banks just send out credit cards without even asking if you need one. If you have too many cards just get out the scissors and give them a bit of plastic surgery! You’ll feel a lot better for doing it and you may be able to save money by limited purchase to things you truly need.
If you would like to know more about how to fix your budget, cashflow or just getting the basics right, give Milestone Financial a call on 6102 4333.