More than money
Putting purpose in the purse
Handling the family finances is a tough gig. In many families, this is the single largest stress a family has. If money is short, everything is harder: the kids get on your nerves faster, the milk seems to run out quicker, and the fuel tank is always pushing closer to zero. Bring on next pay day!
With a struggling economy, rising costs of living and very few industries raising wages, more and more families are facing this challenge every week. Through the next few articles I hope you find a few useful tips which can help you take hold of your cash flow, and help you focus on something bigger than today.
Tip #1: Make a budget
Ultimately, money is about choices. The choices we make today impact the range of choices we have tomorrow. The first step to building better options for you in the future is to know what is going on today. Making your own budget is a great way to know where your money is going, and start making plans for how you want to use it.
Most people think of a budget like a diet: “I need to do this to get healthy” … it is more like the recipe for your favourite food. If I want this cake … I need flour, sugar, milk, eggs. It gives you the knowledge ahead of time to prepare for what you need.
In my budget workshops, I talk about the three stages of budgeting:
- Starter: Recording income and spending
- Planner: Setting goals
- Actual: Comparing your plans to reality.
Starter: What is going on already?
If you are a PAYG employee, your income is usually pretty stable. If you are self-employed, or a contract worker or on casual rates, then it can be a little harder to figure out. Start out by just writing down what you earn, and then record what you spend. This process is much easier if you have a phone app or online banking: you can often download bank transactions to some software.
Next, group together similar payments, and add them up. You might include all of your petrol expenses, auto lease or loan payments, rego, services and tyres as car costs. Your mortgage or rent, rates, and electricity might get grouped as housing, and so on. This allows you to break down into larger chunks where your money goes. Other basic categories might include food, kids and family (gifts for example), and entertainment (movies, socials, taxi to the city).
Planner: What do we need to do?
This is often a tricky one because you have to try to remember all of the random things that happen during the year, like rego for the car, home and contents insurance, and Christmas. Often these things sneak up on people and leave them short. By taking a proactive approach and setting aside the cash you will need in advance, you won’t be hit by the big bill ‘out of the blue’.
Adding these figures up quickly gives you your current position. Is it positive or negative over the period? Have you spent more than you earned? It also helps you figure out if you are setting enough aside for those big bills or if you need to keep a little more in the kitty for a rainy day.
Actual: how are we doing?
The last phase in any budgeting process is review. This is often the hardest because you continue adding up your expenses on a regular basis, and line them up against your expectations. Where are you spending more than you thought? Have you been spending the money you planned to put aside for that holiday?
Money is a powerful tool, like any, you need to control it for it to be safe, and not hurt yourself. Setting up your budget is the first key step in controlling your money, and putting purpose in the purse.
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This article is of a general nature only and has not taken into account your specific objectives, needs and financial situation. The information may not be appropriate to your individual needs and you should seek advice from your financial adviser before making any financial decisions.