If you are saving for a first home or learning to live with your current mortgage, a household budget can be a valuable tool.
This is interesting. Research in 2012 by investment watchdog - the Australian Securities and Investments Commission (ASIC), found the average Australian household spends around $69,166 on general living costs each year. That's about $1,290 per week.
Yet despite the outpouring of cash, only 54% of people know exactly what their money is spent on. (Do you?)
At the time, ASIC commented that many households could end up misdirecting thousands of dollars each year because they are not keeping track of where their money goes. Over time that can mean falling into the habit of living pay to pay.
Skip the guesswork with a budget
One of the single best ways to know where your money is going is by following a household budget.
And it's a lot easier than you may realise. Budgeting simply involves working out how much cash is coming into your household, then comparing this to the amount that's being spent.
For most of us, determining income is pretty straightforward. Wage or salary payments, maybe some family support payments or returns like rental income are generally fairly predictable.
It's in the area of outgoings that we tend to underestimate what we're spending. And small but regular costs can quickly stack up.
That's the beauty of preparing a budget. It will highlight areas where you can cut back spending painlessly to free up extra cash. That means more money to put towards a deposit on your first home, or to make extra repayments on your home loan to become mortgage-free sooner.
Free budget planner
Recognising how valuable a budget is to household financial wellbeing, Mortgage Choice have put together a Budget Planner to help you craft a personalised budget of your own. It's worth a look.
To make your budget a success, remember three important tips:
- Design a budget that lets you have fun – all too often people fail with a budget because they don't allow for spending on fun stuff like dining out or holidays. The key here is moderation – allow yourself to enjoy the good things in life though be sure to spend within your means.
- Be realistic – simply guesstimating your living costs will almost certainly see your budget fail. The end of the financial year can be an ideal time to draw up a budget as you will probably have all the statements and receipts on hand that are needed for tax time. These same pieces of paperwork can provide accurate figures for your living costs.
- Allow some wiggle room – life doesn't stand still for long so be prepared to fine-tune your budget from time to time if you change jobs, start a family, move house or receive a pay rise. At the very least you should be reviewing your budget at least annually.