This is a question that everyone has to answer. Are you working full-time? Part-time? Casual? Relying on the bank of Mum and Dad? Whatever your income source, one of the biggest questions you’re going to have to ask yourself, is ‘What am I going to do with my money?’
Conventionally, this is called a budget. Yeah! Pardon? You hate the word budget?
Hmmm… let’s say God waves her magic wand today and delivers you a job that pays a cool million dollars per year—what would you do with the cash? Buy a great apartment ($700 000)? Brand new car ($100 000)? Spend the rest on the pokies at the local RSL? Congratulations, you just made a budget. Budgeting just means you plan where to put your dough.
One of the most important rules of budgeting, is to decide how much you want to put into savings/investments, and then live within your means. Living month to month, or spending up big on credit cards, is the easiest thing in the world, but it will not help you to become financially independent in the long term. So decide how much you want to spend, and stick to that limit no matter what.
Here’s a real example: An engineer client of mine earns a $100 000 package.
$9500 of this goes straight to super (Yeah! Long-term retirement savings!).
Around $20 000 goes to tax (this changes slightly year to year according to legislation, charitable donations, other deductions, etc).
He then has around $70 000 to live on.
He pays around $12 500 per year for strata, rates, and bills.
He pays around $5 000 per year for his car expenses all up (he drives a new-ish reliable hybrid–engineer, right!?).
He pays around $17 500 for all of him and his partner’s food.
He pays $2 000 per year for private health insurance.
He puts around $24 000 per year into savings and investments.
Leaving him $9 000 for fun, education, charity, hobbies, gifts, magazines, and holidays.
This is a basic example of a budget. “I can’t save $2 000 per month!” you shout in distress. Well, I hear you. There are plenty of people in Australia, who work more than full time hours and will never earn more than around $40 000 per year. But what if you could be one of the people who invests $24 000 per year? Or more? Are you earning $100 000? It’s not actually that much by Australian standards. How much are you really spending on alcohol and nights out with friends?
“But I’ve got a mortgage!” Yep. Hear that, too. If you’ve got debt, use your savings money to pay it off as fast as possible. Once you own your property or you’ve paid off your personal loans or credit cards, use that money to invest. Don’t put any charges on your credit cards that you can’t pay off by the end of the month. $500 shoes are a want, not a need (not that I’m judging, if you can afford it out of your ‘fun money’– go for it).
By reading this blog, you agree that you read it under your own risk, and Gill’s Practical Bookkeeping is in no way responsible for any harm or prejudice to yourself, your business, or any fictional examples above.
I am not a financial advisor. I do not have an AFSL. I am a chick who likes to read, think, write, and has access to google. You should treat this blog with the same seriousness that you would treat anyone whose main qualification is access to google. This blog is for entertainment purposes only. It’s a little like watching Big Bang Theory for finance nerds.
Anything you take from this blog is your responsibility. Nothing in this blog, even if you are mentioned by name, address, and telephone number, pertains to your personal situation. Anything you agree with, or disagree with, you are welcome to comment on, but your opinions belong to you. You are responsible for your comments. If they are offensive, I will remove them.