It can be tricky to be an adult, especially if you love to shop and are not good with numbers. There is so much to do, and so many things that can be seen across the country, and all of it costs money.
Many of us are guilty of falling into the trap of living beyond our means at some point in our lives. It can sometimes seem to be impossible to climb out of debt. Make the effort to learn the following useful tips on how to best manage your personal finances, to allow you to not fall victim to the money trap and enjoy life within your means.
Here are some tips to help you control your finances instead of letting them control you!
Debt Statistics for Australia
The most recent census, from the ABS report on wealth and household income, states that 75% of households in Australia are in debt, and 55% indicated that the main culprit was credit cards. Compared to the 2003-2004 time period, the average debt across Australian households has increased by 79%, while at the same time, average income has increased by only 38%. This is a big gap and continues placing a great deal of pressure on families in Australia. Inflation has more recently increased by 9.7% since the 2013 election compared to a 7.8% increase in household income. That equates to a 1.7% decrease in the standard of living.
The 79% increase in debt was driven primarily by property debt that makes up 56% of total Australian household debt. Entering into the property market can help to build wealth and secure the future for families. However, one disturbing statistic shows that 27% (one in four) households liabilities that were equal to three years or more worth of disposable income – which means that they are classified as being over-indebted.
Since numbers do not lie, it can be difficult to stay on top of expenses with the cost of living continuing to rise, without earnings keeping pace, so what should we do about this?
The increasing cost of living in QLD
The Queensland Council of Social Services (QCSS) reports that many individuals and families are struggling to just afford to pay for the basics.
This research found that the most expensive area to live in is Mt Isa. The second-highest housing cost for the QLD after Mt. Isa was Brisbane. For a two-parent family that lives in Brisbane, the weekly expenses, on average, are $1,418. That covers bills, insurance, savings, clothing, car, drink, food, and all common sundry expenses. Considering that $1,445 is the average weekly income, that doesn’t leave much wiggle room for a majority of families. Unfortunately, with the cost of living continuing to increase, people with lower incomes continue to fall further behind. Australians who rely on Government benefits and pensioners are barely able to stay afloat.
So what can you do to get ahead?
Keep Track Of Your Spending
Where does your money actually go every day? Before you can determine the best way to effectively manage your finances, first you need to clearly understand what your current spending patterns are. You may be surprised when you start tracking your spending, all the money that can fly out the door on certain items than you may have estimated. Travel and work expenses, lunches, coffees, all add up and those ‘smaller’ purchases may be hard to track.
David Bach is a financial expert who wrote a book called “The Latte Factor” that outlines the concept that reducing your small expense can result in big savings. For example, cutting out one $3.50 expense a day would end up saving you $1,277.50 over one year’s time. After five or ten years, this is a habit that can really pay off, especially if you are able to find a safe way to invest the money from your former daily lattes.
Thoroughly track your spending for one month to get a clearer picture of your personal spending habits. You will then have an accurate financial overview to create your budget from.
Develop a Budget
Personal finance expert Alister Claire from Credit Capital says, “When you create a monthly, fortnightly, or weekly budget (or all three of them) it is an excellent way to establish where your money is coming and going. If you get paid once a week, then develop a weekly budget. On the other hand, if you are paid once a month, then it may be easier to calculate your expenses on a monthly basis to balance with your earnings to accurately assess your financial situation”.
Getting a budget set up can help you organize your finances and remind you how much you can spend as well as future expenses that need to be planned for.
Note all of your streams of income (income from your job, rent assistance, supplements, allowances, etc.)
Note all of your expenses (health insurance, home insurance, clothing, food and drink, car repayments, mortgage or rent, utilities, bills, etc.)
If you have any large bills that are either charged quarterly, bi-annually or annually, it is good to break the total amount into smaller sums to save over the months or weeks before the bill is due. It will depend on the amount that you can afford to save every week.
As a feature of its Money Smart initiative, the Australian Securities and Investment Commission (ASIC) developed a budget planner to help you with organizing your finances.
Try to factor in some savings into your budget for unexpected expenses, and save money for a fun weekend or a trip.
Pay Your Debts Off As Soon As Possible
It can be hard to keep credit cards under control once they are introduced into your life. It is never a great idea to use a credit card to pay for items or bills you cannot afford already. You need to be sure that you can consolidate whatever you spend on the credit card before the due date on your minimum payment in order to keep interest charges and fees under control, or manageable, at least.
Voluntary Superannuation Contributions
When these voluntary payments are made it will not only benefit you in retirement but also can help you save money right now. How is that possible? For individuals who earn more than $37,000 per year, making pre-tax contributions reduces the amount of tax you will need to pay when the financial year comes to an end. The contributions get deducted from your pre-tax income, which means you pay less in taxes.
To get a salary sacrifice or voluntary super set up, you need to request it from your employer.
Use Technology to Help You Achieve Your Goals
All of us have high tech modern gadgets. We might as well use them to help with our money.
Many banks offer budgeting tools and bill reminders and savings functionality.
There are numerous finance and savings apps that can help you get set up and achieve your goals faster. Those tools also can help you recover faster when you fall behind, and help you plan for the future by setting reasonable expectations and targets.
It can be tough to get out of debt when you are struggling with the bottom line. A major cause of stress is poorly managed finances. After you get this important aspect of life working for you instead of against you, your life will be much easier and your future will seem much brighter.
Make sure to plan some fun whenever possible
It isn’t necessary for good money management to kill all of your fun or feel like a huge sacrifice. In fact, it is the opposite. After you get used to being aware of the way you spend your hard-earned money you will finally be able to plan for and budget a future that puts much less pressure on your finances.
If you need further assistance with managing your finances, consult with a professional. A good financial advisor can definitely more than pay for themselves through all of the savings they can help you achieve.