In my experience as a financial planner, around 10% of Australians prepare and stick to a personal household budget. However, budgeting is the first step in establishing a good financial plan and achieving your financial goals.

I know it’s hard to do, especially when unforseen expenses occur like blown air-conditioners in summer, car registration, insurance and Christmas gifts crop up; but in the current climate of lower investment returns and a slowing domestic economy, we should all be reigning in our spending habits.

Did you know household debt is as high as it ever has been? Debt is now 175% of average household disposable income. This simply cannot be sustained.

So why develop a personal budget?

• Helps identify where cost savings can be achieved
• Helps show the capacity for a person or household to save (via a regular investment plan) or reduce debt (increase loan repayments for example)
• It helps ensure you do not spend money you don’t have
• Helps plan for the future (family, schooling, retirement)
• Helps you prepare for unforeseen emergencies
• It sheds light on bad spending habits

You can find budget tools everywhere

To get started, contact me via email jamesc@lanternadvisory.com.au or access the ASIC Money Smart budget planner here: https://www.moneysmart.gov.au/tools-and-resources/calculators-and-apps/budget-planner

Tips for a quality household budget

To ensure you set up a quality budget for your household, try the following tips:

• Do count all your expenses including your spouse and children’s
• Do over-estimate your expenses eg. rates, utility bills if you are unsure or if they fluctuate
• Use your base salary as income (excluding super and net of tax is best), not irregular income like bonuses and tax return money
• Do include all your loans and credit card repayments (use conservative rates of interest for buffering and determining your capacity to repay if interest rates change)
• Add up all your expenses and subtract this figure from your net income – you will then know if you have a cash flow surplus or deficit
• Once a year review this plan and see the results!

Final word  

A financial budget is an ideal way to commence a financial plan. It is worthwhile doing to appreciate your exact lifestyle costs (removes guesswork) and how you are positioned for when your circumstances may change ((eg. lose a job, starting a family). If you aren’t aware of your financial situation and living within your means, you are guessing and just hoping for the best.

More information

For more information, please contact James Cavanough via jamesc@lanternadvisory.com.au or phone 07 3002 2699.