Brave your budget

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WHAT IS A BUDGET?

A budget is a financial plan that divides up your future personal income towards living expenses, savings and debt repayment. When creating a budget it is important to consider both past spending and personal debt.

It’s not just about reducing outgoings – the key is knowing what you spend/where you spend it so you can choose where to spend it going forward.

Some interesting facts:

  • 86% of the Australian population don’t know how much money they are spending every month, although 90% think they have a good handle on their spending.
  • With the convenience of alternative payment methods (ie tap and go), 63% of Australians have increased their spending in the last five years.
  • 91% spend without thinking, and 86% lose track of their spending.
  • About 70% of people believe that alternative payment methods make it easier to spend money that they would not spend otherwise.

WHY DO I NEED A BUDGET?

When you are planning a holiday,  you will undoubtedly have a budget in mind of what you are planning on spending and where you are going to spend it. It is important to have a similar plan for your finances.

Without a budget, it’s hard to keep a clear understanding of your in/outgoings. Many of us are spending our hard-earned salaries without tracking what we are doing with it and not ‘capping’ the different areas of expenditure.

It might seem obvious, but it is one of the key things people get wrong when looking to borrow. If you don’t have a handle on your cash flow it is irrelevant what you earn – e.g. you may be a big income earner who spends everything that comes into the bank, but you have no idea where the money goes.

BUDGET FOR LENDING

In the past lenders generally used HEM to estimate a borrower’s annual living expenses, there was then a movement towards needing to break down what/where you are declaring your spending. Now, however, we are seeing a trend where the banks are not only asking you to declare, but they also want to verify your spending habits and expenses by scrutinising your bank and credit card statements.

When we start working with our clients, we will ask them to break down your living expenses into 18 categories for the banks. It can be difficult to have a real idea of what you are spending to meet your basic needs and the lifestyle you want, so by working through this process with you we can gain a true picture of your real expenditure.

Once we have these true costs, we will have a real picture of what you could afford to borrow, including building in a buffer in case of possible interest rate rises – we want to ensure that our clients are fully prepared for the future.

CREATING YOUR BUDGET

To help our clients easily create their budgets, we utilise an online tool that provides an automated way to analyse spending.

If you want to start creating this independently, there are numerous useful resources available to help online, from apps that track your spending to spreadsheet templates – we love this budget organiser from Money Smart – https://moneysmart.gov.au/budgeting/budget-planner.

If you are thinking about applying for finance, but don’t know where to start with your budget then get in touch – we can help!