How to Budget…….. What’s included: • • • Budgeting tips to help get you started. Handy worksheets so you can see where your money goes. Ideas for managing debt and setting goals. There’s a saying that goes “Most people don’t plan to fail, they just fail to plan”, which suggests that thinking about your financial goals is an important step towards success. By working out exactly where your money goes, you can adjust the way you manage things, achieve your goals and be better off. Working out where the money goes The key here is for you to keep track of how much money you receive and how much you spend. It’s the key to keeping your financial life in good shape. ZJL Partners Tip Don’t fool yourself. When working out your budget be totally honest with yourself. This is no time to forget about things or underestimate how much you spend. Getting ready Working out exactly where your money goes can take a bit of time and effort and there’s often a feeling that you’re not going to like what it reveals. But don’t let that put you off because, whatever the outcome, having a budget is a great way for anyone to be better off. What to do: Find out the after-tax (net or take-home) income you receive in wages or salary; and from any other sources such as rent, extra jobs, investments or benefits. • • • Gather up all your credit card statements, bank account statements, recent bills and cash purchase receipts, and Find a calculator, and Set aside about 30 minutes. Managing debt Borrowing to pay for something is normally much more expensive than saving up for it first. However, most of us need a loan at some point or we’d spend our whole lives saving up for our first house. The important thing is to manage your debt well. Try the following steps: Know exactly what you’re paying Find out what interest rate you’re paying on each of your debts – including loans, overdrafts, credit cards and home loans. Write them down on the next page, beginning with the most expensive one. Get help with ways to reduce the interest you you pay Talk to us about how you could pay less interest. This can include combining your debts into a single loan with a lower rate, using credit card balance transfer offers or topping up your home loan to repay more expensive debts. Turn the page to begin using our handy budget worksheet Income (after tax) Weekly Fortnightly Monthly Salary/wages Partner’s salary/wages Investment dividends/interest income Rental income Commission or bonuses Government allowances/family tax benefit Other Other Total income (A) ZJL Partners Tip If you are self-employed, record your excluding GST annual gross (tax not taken out) income, but remember to include tax. Regular expenses Weekly Rent/mortgage payments Electricity/gas/water Home phone/internet Mobile phone Hire purchase/laypurchase/lay-buys Childcare Credit card payments Other/loan repayments Food/groceries Petrol Pay TV Insurance – home/contents Insurance - car Insurance – life/income/medical Other Other Total regular expenses (B) Fortnightly Monthly Irregular expenses Weekly Fortnightly Monthly Weekly Fortnightly Monthly Weekly Fortnightly Monthly Car registration/services Rates School fees/donations/trips School uniforms Medical – dentist/doctor Birthday presents/gifts Christmas presents/holidays Vet bills/pet expenses Children’s activities/babysitters Tax (if self employed) Other Other Total irregular expenses (C) Everyday expenses Going out/entertainment/taxis Lunches Cafes Coffees Haircuts/beauty care Clothing Shopping Family activities/outings Dining out Other Other Total everyday expenses (D) The results Total Income (A) Total expenses (B+C+D) = E Grand Total (A – E) A negative result means you’re spending more than you’re earning. It’s time to take another look at your expenses, especially the things you could do without. If you have debts, there may be a way to reduce their cost. A positive result shows you’re you’re earning more than you’re spending. Make sure you have a plan for saving and investing towards your goals. ZJL Partners Tip Collect your cash receipts for each month by emptying them out of your wallet or purse into an envelope every night. That way you can keep track of the things you buy with cash, which don’t show up on your bank statements. Setting goals Personal goals and financial goals help you to get the life you want. Here are some suggestions to get you started. Identify your financial goals With your personal values in mind, write down your financial goals. It’s best to put them into categories of short, medium and long term. Make plans to get the money If you don’t have the surplus income to cover the cost, you could either spend less on other things or increase your income somehow. Keep an eye on your progress Review your progress monthly to see if you’re on target. If you’re not on target, be prepared to make changes as necessary. You can adjust cost, timing or strategy. Celebrate your success You’ll feel good when you reach a goal, and that’s reward in itself. You could go a step further and celebrate with a special meal or a night out (so long as it doesn’t blow your budget!). Remember to toast your success! Repay expensive expensive debts as soon as possible Plan and budget to pay off your most expensive debt as quickly as you can afford to. When that’s gone, tackle your next most expensive debt. List your debts in order Write down all your debts in order from the most expensive to the least. Make sure you use the annual (p.a.) interest rate for each. If a company highlights only the monthly rate, ask them what the annual rate is; often it will be more than 12 times the monthly rate. Who debt is with Total debt owing Annual interest rate Amount owing owing today Convert all your numbers to the same time period When you’re working out your budget, it’s important to use the same time period – weekly, fortnightly or monthly – for all your income and expenses. Most people find it easiest to use their pay period. For example, if you’re paid monthly, just convert all your other income and expenses to monthly amounts as well. Whatever period you choose, the conversion tips below will help you allow for the fact that most months are a bit longer than four weeks. Here’s how to convert from one time period to another: • • • • • • • Annual to monthly, divide by 12. Annual to fortnightly, divide by 26. Annual to weekly, divide by 52. Monthly to fortnightly, divide by 2.17. Fortnightly to monthly, multiply by 2.17. Monthly to weekly, divide by 4.33. Weekly to monthly, multiply by 4.33. ZJL Partners Tip For some types of spending – such as food, entertainment, clothing – it might be a good idea to look at two or three months and come up with an average monthly cost. This information can help if you are: • • • Wondering where your money goes, or Wanting to reduce your debt, or Setting some financial goals. For more information on budgeting, contact Peter Locandro or Michael Carter of ZJL Partners on (03) 9547 5022. Suite 6, First Floor, 49-54 Douglas St, Noble Park VIC 3174 PO Box 331, Noble Park VIC 3174 Tel: 03 9547 5022 Fax: 03 9547 0595 Email: [email protected] or [email protected] Website: www.zjl.com.au Please note this article is for information purposes only and does not constitute legal advice