Adulting can be tricky, particularly if you aren’t great with numbers...and you love shopping. There’s just so much to do, so many things to see across our sunburnt country and it all costs money. Living beyond our means is a trap most of us are guilty of falling into at least once. Climbing out of the pit of debt can sometimes seem impossible. Take the time to learn our helpful tips on how to manage your personal finances, so you can enjoy life within budget and not fall victim to the dreaded dollar.
So here’s how to control your finances before they begin to control you!
Australian Debt Statistics
According to the most recent census, the ABS report on household income and wealth
states that three-quarters of Australian households are in debt, with 55% of those indicating that credit cards are the culprit. Compared to 2003-04, the average household debt across Australia has grown 79% however, average income has only increased by 38%. That’s a rather large gap and something that continues to place a lot of pressure on Australian families. More recently, inflation has risen by 9.7% since the election in 2013 compared to a rise in household income of 7.8%. This equates to a 1.7% drop in the standard of living.
The 79% debt increase was primarily driven by property debt which accounts for 56% of total household debt. Of course entering the property market can secure the future of families and build wealth, however one scary statistic shows that one in four households (27%) had liabilities equal to three or more years of disposable income - meaning they are classified as over-indebted.
Numbers never lie, keeping on top of expenses can be difficult as the cost of living rises, and our earnings are not, so what can we do about it?
The rising cost of living in QLD
According to the Queensland Council of Social Services
(QCSS), their "Living affordability in Queensland report” shows many families and individuals are struggling to afford the basics.
Their research uncovered that Mt Isa is the most expensive region to live in. Brisbane has the second-highest housing cost in QLD following Mt Isa. For a two-parent family living in Brisbane, the average weekly expenses are $1,418. This covers food, drink, car, clothing, savings, insurance, bills, and all sundry expenses likely to be encountered. Considering the average weekly income is $1,445, this leaves little wiggle room for most families. Unfortunately, as the cost of living continues to rise, those at the lower end of the income scale fall further and further behind. Pensioners and Australians relying on Government benefits can also barely stay afloat.
So how can you get ahead?
Managing Your Finances
Track your spending
Where is your money really going each day? Before you can decide the best way to manage your finances you must have a clear picture of your current spending habits. You might be surprised when you begin to track your spending, how much more money is flying out of your account on some items than you would’ve estimated. Coffees, lunches, work and travel expenses all add up and these ‘smaller’ purchases can be difficult to keep track of.
Financial expert David Bach penned the book "The Latte Factor” outlining the notion that cutting back on small expenses can lead to big savings. By cutting one incidental $3.50 expense per day, over the course of one year you would have saved $1,277.50. This habit can look very attractive after five to ten years, particularly if you find somewhere to safely invest your daily latte.
Track your spending meticulously for a month to get a clear overview of your spending habits. Then you have an accurate financial canvas with which to create a budget.
Develop a Budget (don’t worry, it’s not that painful).
Creating a weekly, fortnightly, or monthly budget (or all three if you get really excited) is a great way to establish an overview of your expenditure and incoming funds. If you get paid weekly, work out your weekly budget, if you’re paid monthly it might be easier to calculate your monthly expenses to balance against your income for an accurate picture of your situation.
Budgets can help us organise our finances - remind us how much we can spend and what future expenses we need to plan for.
- Note all your income streams (working income, allowances, supplements, rent assistance, etc.)
- Note all your expenses (bills, utilities, rent or mortgage, car repayments, food and drink, clothing, home insurance, health insurance, etc.)
- If you’re expecting large bills that are charged annually, bi-annually or quarterly, it’s a good idea to break this amount up into smaller chunks to save over weeks prior to the bill. Depends on what you can afford per week.
- To help you organise your finances, the Australian Securities and Investment Commission (ASIC) has developed the budget planner, as a feature of their money smart initiative.
You should try to factor in some savings for unexpected expenses, or even better, put some money aside for a trip away, or a fun weekend.
Pay off Your Debts ASAP
Once you invite a credit card into your life it can be difficult to keep them under control. Getting a credit card to pay for bills or items you already can’t afford is never a good idea, you should be certain you can consolidate what you spend on the card before your minimum payment is due to keep those pesky fees and interest charges at bay, or at least manageable.
Before consolidating, you should consider the length of the term and the rate of interest. Shorter terms and rates can dig you into deeper debt quickly. This downward spiral and late paid bills can lead to a poor credit rating that can cause a lot of trouble for you in the future.
Clearing debts within a shorter time than the delegated contract term is a great way to boost your credit score. Canstar provides an excellent guide on how to boost your credit rating
To deter yourself from using your credit card, you could lock it up and throw away the key...or if that’s too dramatic look into an alternative interest-free payment service such as Afterpay
Start Your Emergency Savings
Expect the unexpected! There are many sneaky surprise expenses that can pop up out of nowhere to frighten us. House maintenance and repairs, replacing appliances, vet or medical bills, vehicle problems - to name a few. You should put something aside each week for emergency savings so you can laugh in the face of broken-down things. You don’t have to start big, even $10 a week leads to $520 at the end of the year.
You might prefer to have these contributions transferred automatically into a secondary bank account on payday so that it’s out of sight and out of mind before you can spend it. If you don’t want another bank account, another nice nostalgic way of putting a little extra cash aside for emergencies is to keep a piggy bank. You might withdraw $10 or $20 per week and whatever you don’t spend, goes into the emergency pig!
It’s rare to carry cash around these days with how ubiquitous PayPass and smartphone payment services are; however, that makes it easier to put away loose change and notes because you’ll most likely forget that you’ve got it.
Make Voluntary Superannuation Contributions
Making voluntary superannuation payments is not only a benefit in your retirement years, but it can also help you save some cash right now! How? For people who earn above $37,000 p/annum, making pre-tax contributions, or "salary sacrificing” lessens the amount of tax you’ll have to pay at the end of the financial year. This money is deducted from your pre-tax income, meaning you will earn less, and therefore pay less tax.
To set up a voluntary super or salary sacrifice, you need to ask your employer for this service.
Use Tech to Get You There
We have all the techy modern gadgets, so why not use them to help you with your cashola!
Many banks have a bill savings and reminder functionality and budgeting tools right at your fingertips.
There’s a whole swathe of savings and finance apps to help you set and reach goals faster. These tools can help you recover quicker when you’ve fallen behind, and also plan well for the future with reasonable targets and expectations.
Money makes the world go round, but if we’re struggling on the bottom line it can be hard to get out of the red. Poorly managed finance is a surefire recipe for stress. Once you have this important part of life under control and working FOR and not against you, the future seems brighter and your life in the now is so much easier.
Don’t forget to plan for some fun when you can
Good money management doesn’t have to be a fun-killer or feel like a sacrifice - it’s quite the opposite. Once you’ve gotten accustomed to being more aware of how you spend your hard-earned you finally get to budget and plan for the future with a lot less pressure on your pocket.
If you need more help managing your finances, seek the assistance of a professional. Good financial advisors will more than pay for themselves with the savings they’ll help you achieve.