Wednesday, 22 August 2012

That nasty 'B' word – Budget

There are many aspects of our industry (Financial Planning) that really amaze me, but the #1 simply has to be the number 17%.  This is the number of Australians that have received advice from a Financial Planner (by Richard Cornwell).
The reasons behind this number are plentiful but without doubt the comment I receive the most after going through the financial planning concept with clients is always, “we wish we had come to see you earlier”.  To be honest so do I.  The most important start to our relationship with clients is to get an understanding of cashflow.  How much is being earned (normally easy to work out) and how much is spent (not so easy), to be able to know how much we can save!

That nasty 'B' word
So until you realise that you really do need advice and while you are still comfortable being in the non-advised 83%, the one thing I’d love you to do is a budget.
Whenever I ask new clients whether they have a budget, the answer is no.  Excess cash flow or monthly savings are the building blocks for any good financial plan.  But how do you know how much can be saved without knowing how much you are spending.  Once you have a budget you can then save first and spend the rest.  Much better option than what I see all too often, spend first and save whatever is left, which is normally nothing.  How often does that pay increase or bonus simply get eroded away by run of the mill expenditure? Imagine if you had saved every bonus or pay increase how much better off you’d be today. 

There are a couple of ways of doing a good budget.  
  1. Create a list of all expenses, then guess the daily, weekly, monthly, quarterly and annual costs associated, total them, divide by 12 and you have a monthly budget.  You can do this by using this easy budgeting calculator: Budgeting calculator.  Too many of these are not achievable, because you have no idea of what it is you’re spending your money on.
  2. I prefer to get clients to take their last 3 months bank statements then itemise their actual spending by category and create a budget this way.  Much more realistic.
There are also some great apps that can be used.  The government on their money smart website has recently launched one called TrackMySpend 

An easy-to-use app, TrackMySpend shows you what you are spending your money on and puts you in control.
  • Track personal expenses on the go
  •  Find out where you can save
  • View your spending history on screen or export to a CSV file

 Here are a few others that you can investigate:
1.    iXpenseIt: This is a really useful app that simplifies the budgeting process. You can record expenses anywhere while getting easy to understand reports.

2.    iReconcile: This app allows all your financial data to be viewed quickly on the go. It is streamlined for quick entry at the checkout counter. 

     So until you feel the need to seek advice please get an idea of exactly what it is you are spending your hard earned income on and be disciplined around your budget!

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