Article by Patrick Lynch, Head of Operations at Long Property
In the last newsletter, we spoke about the Banks’ historical view of and current crackdown on Living Expenses. It might now be appropriate to look at some budgeting and income strategies that can improve your financial circumstances (even if you are living within your means) and borrowing capacity (for wealth accumulation).
So, what should you do?
Identify and Budget
Firstly, identify current spending. How easy are ‘tap-and-go’ payments? Most Bank apps help you to categorise how and where you are spending. Check out the Government’s MoneySmart website, which offers a simple Budget Planner plus apps such as TrackMySPEND, or create a simple Excel spreadsheet with the following categories:
- Home & utilities (rent, electricity)
- Clothing and personal care
- Recreation & entertainment (incl. holidays)
- Transport (private car, Myki/ Opal, taxis)
- Groceries & Eat-out/ Take-away
- Investment property (strata, managing fees)
- Insurance (life, health, car)
- Medical and health
- Children (school, childcare, child support)
- Connections (mobile, internet, pay TV)
Review the last 3 months of your main transaction account and credit cards, remembering big ticket items like insurance or holidays might be outside this timeframe.
Reducing expenses
Now you’ve identified how and where you spend, the next step is to see where you can save. It’s not just saying ‘I’m spending too much’ and ‘I’ll cut back on my discretionary expenses’ (e.g. eating out, entertainment, holidays, etc.), but practically looking at where cash flow can be improved. Look at the categories above.
Are you on the best plan with your utility provider? In Victoria, the State Government’s independent price comparison site Victorian Energy Compare offers tools to identify cheaper deals, with a reward of a $50 bonus for the small effort involved. They also have tips on energy efficiency.
This doesn’t just go for utilities – are you getting the best deal for your household, personal or car insurance, what about private healthcare, etc.?
Don’t be afraid to contact suppliers. Let them know you are considering switching. Try to have examples of better deals ready. There are private comparison sites available that can do the legwork for you. Providers rely on loyalty/ inactivity, which is why existing customers might not always get the best deals. Ultimately, if you don’t ask, you don’t get.
Don’t forget about any debts you might have. We suggest an annual health check of home and investment loans, but there are also personal loans, credit cards, etc. Lenders consider ‘interest free’ services provided by major retailers or businesses like AfterPay and ZipPay as debts. These make spending (maybe too) easy, with periodic payments like a loan. Do you need those? Clear credit card debt in full each month, as interest costs at c 20% add-up significantly, and reduce unnecessary limits. Are you able to repay personal loans or HECS/ HELP debt earlier? This might eat up current savings but can make a major difference when a Lender is assessing borrowing capacity for a loan application.
Consider setting-up direct debits for regular payments – loans, credit cards, utilities, etc. – making sure to get the timing right (i.e. when there are funds available, such as shortly after you get paid), being aware that the amounts might vary. Knowing these are cleared can reduce stress. Look for existing regular payments for subscriptions and memberships (e.g. gyms or pay TV services like Stan and Netflix). If you aren’t actively using (and enjoying) these, review or cancel as needed.
Improve income
Rather than just concentrate on spending – because that can be overwhelming – look at the other side of the household budget. Are you maximising your earnings?
We’re not suggesting dramatically changing jobs or chasing a higher income at the cost of happiness. Maybe it is time to speak with your employer and put a reasoned case forward for improving your salary – don’t just demand, evidence how what you contribute (now and in future) might deserve better.
Even if an increase isn’t possible, look into salary packaging and salary sacrifice. These schemes can allow employees – through their employer – do more with their money, reducing taxable income and increasing disposable income. Depending on your industry and employer, there are a variety of items like car loans, travel costs, living expenses, etc. that you could package so they come from your before-tax income. Even consider your future position with additional Superannuation contributions that might be tax beneficial.
Think of other income sources too. We are all likely guilty of having excess ‘stuff’ like clothes, children’s toys, kitchen equipment, etc. A garage sale or using sites like Gumtree can be a way to both declutter and end up with extra cash. You might also have a hobby that can become a small business, trading at farmer’s markets or online.
Conclusion
Knowledge is important. None of the ideas above are earth-shattering, but are you doing it?
You might think you don’t have the time to do it all, so pick the easiest ones to start with. Do a little bit of research because the rewards can be significant and worth the effort – better control on spending, increased personal or loan interest savings, more income, improved borrowing capacity, etc.
Finally, make the extra cash you’ve worked hard for work for you. Maximise the offset benefits of your home loan or clear debt sooner. Get the best deposit rate for your savings. It can be a good idea to save for a ‘rainy day’, providing peace of mind in the event of large bills or other unexpected costs.
Action Plan
- Review your current expenditure, breaking it down into spending categories.
- Research & contact providers (utilities, insurance, healthcare) for the best deal.
- Review personal debts – loans, credit cards, HECS, etc.
- Cancel memberships or subscriptions you don’t need.
- Look for avenues to increase income – salary review, selling excess items, etc.
- Make the extra cash work – savings, deposit rates, repay ‘bad debt’ sooner.
