FINANCIAL INDEPENDENCE

Monthly Budget Calculator (Excel file, 42KB)

 

CASH FLOW MANAGEMENT

Budgeting is a habit that needs to be developed to ensure a successful outcome to your financial goals as it will give you control over your finances. It shows you how much you earn, where your money goes and how much should be left over.

You start the process by collecting all the information that can help you, such as pay slips, bills, receipts, bank account and credit card statements. That way you can determine your situation accurately.

Carrying around a notebook can also be helpful in keeping track of the spending of the cash in your pocket. This helps you monitor the money spent on lunch at work, a night out, newspapers, magazines, books, CDs etc.

If it’s a family budget, sit down and discuss it together so everyone knows what is expected and they will feel more accountable.

After you’ve organized all of the necessary data that enables you to calculate the numbers it’s time to start filling them in. To do this you can use our free budget calculator. The advantage of using this calculator is that it has all of the necessary fields and you can also save it as a reference whenever you need it.

Once you’re satisfied you’ve accounted for everything it’s time to confront the result. There’s three scenarios, you spend less than what you earn, you spend what you earn, you spend more than what you earn. If you’re in the last two categories it’s probably worth the effort to sit down and identify areas where you can cut back.

Cash Flow Management (budget) is not worth the paper it’s written on if you don’t stick to it. Filling in the Cash Flow calculator is only the beginning of the process. Check what you’re spending on a regular basis to make sure you’re on track. You may need to continue carrying around the notebook for a while and ask for receipts for everything you buy. It’s up to you to make it work.

Review your budget every 12 months or when your circumstances change, for example, when you get a pay rise. It’s oh, so easy to let that pay increase slip through your fingers, so be careful. Disciplining yourself to achieve the above, is going to give most some short term pain. However, if you have the courage to do it your medium to long term gain will leave you ecstatic.

There will always be something to entice you to spend money. Back in 1965 if you had a car, TV, fridge and a washing machine you were right up there with everyone else on the street. Of course today you need to have a dryer on top of the washing machine and a DVD player to go with the TV, mobile phones, computers etc., you get the idea. Despite all this, we all have the potential to save money.

Once you have created a budget you should know how much you can save. It would be ideal if you could save 10% of your net income. But for some, that may initially be over ambitious. The main principle is to try and establish the habit of saving. By endeavouring to establish the habit and hopefully gaining some successes you will continue to develop confidence. From there motivation can help you find the drive to reach a higher goal.

It’s worth remembering, it takes a smart person to make money but, it takes an even smarter person to hang on to it.

So, if it’s not 10%, what is it going to be? Try a lower percentage initially, or even putting the change from your pocket at the end of each day into a big jar and just let it accumulate until you have $1,000. To get there quicker, throw in any $5 notes that happen to be in your wallet at the end of the day.

Also, don’t get caught in the trap of thinking that because you’re due for a raise soon and, as soon as that happens you’re going to put all or part of that money into savings. It’s a fact the more you earn the more likely it is, the more you will spend. It’s not how much you earn but what you do with it that counts.

If you’re serious about saving you need to think it through carefully. You see, it’s all about priorities. First of all, you say you couldn’t even save $20 per week. Then friends call you up and invite you out to dinner or drinks and before you know it, you’ve accepted the invitation and spent the money.

You’re more likely to stick to your savings plan if you have some sort of goal – it might be a family holiday or reducing the mortgage to a specific amount by a specific date. If you don’t have a purpose to save then you won’t be motivated to do it. You also have to be committed to it.

If you’re paying a mortgage off, use a Line of Credit account for at least part of the money you owe. Or, if you’re subject to temptation use an offset account to ensure you’re getting the maximum efficiency from the use of your money.

For those that don’t have a mortgage, use a savings account. The best type of account is an online savings account offered by companies such as ING, BankWest and AMP. There’s no minimum deposit – you can start saving with as little as $1. There’s also no minimum balance requirement.