Experienced financial planner, James Gerrard, gives us his top tips on household budgeting.
Manage your cash better
Money left over each month which is not needed for an investment plan should be transferred from your everyday bank account into a bonus interest savings account so that it accrues a higher level of interest. This is particularly useful if you will still need to access the money again in the near future, such as to put together a deposit on a home loan, as an example.
Some accounts offer more than four per cent interest compared with everyday savings accounts, which are normally less than two per cent, making them a simple way to extract the most from your funds. Using a high interest cash account can also reduce the temptation to spend. This is because money in a savings account must be transferred back into the everyday bank account before it can be accessed. Though spending this money isn’t impossible, this additional step in the spending process may provide enough time to question whether the purchase is really necessary in the first place.
Credit cards are another area which need to be managed carefully, as people tend to spend more money if they know they will be paying for it at a future point instead of in the moment. For this reason, a more favourable alternative to using a credit card might be to instead use a debit card. This will mean you will only be spending what you already have in your account, meaning you are spending within your means.
Aim to save 15 per cent of your income
I always recommend that clients aim to save at least 15 per cent of their income after tax (“net employment income”). I consider a saving ratio above 35 per cent to be excellent and anything above 50 per cent exceptional. If your saving ratio is below 15 per cent, you might want to consider reviewing your expenditure to locate any ways in which you could reduce unnecessary spending.
These savings could be used to make additional home loan repayments, accumulate cash in a high interest account, or be invested in property or share-based investments.
One way to ensure you’re regularly saving is to set up a dedicated savings bank account, and ask your employer to direct a portion of your salary into it. You will quickly get used to living with less money, and may even forget about the money being built up in the savings account. Another option is to direct your employer to deposit any pay increase or bonus into the savings account so you don’t notice the change and won’t be tempted to spend it.
Stop overspending on groceries
Takeaway food is usually more expensive than homemade food, so instead of buying lunch at work every single weekday, why not consider preparing your own food every few days, or every second week? Doing so doesn’t have to be an enormous hassle throughout the week. If you don’t have enough time to cook on weekdays, you can always put together a batch of lunches on the weekend and store them in the refrigerator or freezer. Foods such as salads or stir-fries can be prepared in bulk, and gradually eaten for lunch throughout the week. Using different salad dressings, sauces or toppings each day can mix things up and prevent any boredom which might arise when eating the same lunch a few days in a row.
Another way of reducing your food-related financial wastage is to make a shopping list of the things that you plan on buying before heading out to do the groceries. This could help reduce impulsive and unnecessary purchases – especially if you frequently shop while hungry, thirsty or tired. Challenge yourself to stick to the list and resist buying anything which isn’t on it. Making a competition of it with your significant other, a sibling or a close friend may even turn the money-saving challenge into a bit of fun.
It’s also probably going to be easier to stick to your guns if you can avoid heading out to the supermarket while hungry or thirsty in the first place. Doing so often presents an enormous temptation to make impulse purchases, which can often be unhealthier than what we may have selected otherwise.
Additional purchases can occur when the kids are accompanying you on the trip also, as food marketers often target children specifically with brightly-coloured and attractive packaging. Sometimes bringing the kids will be unavoidable, of course, but where possible it can really help your bottom line if grocery shopping can be a child-free experience.
James Gerrard is a Partner at PSK Financial Services, and has worked in the financial services industry for roughly 15 years. His opinions on financial planning are regularly published in the Australian media, including the Australian Financial Review, The Australian, the Sydney Morning Herald, The Age, The Herald Sun and Business Review Weekly. Prior to joining PSK, James was a Senior Financial Adviser with Godfrey Pembroke, and worked for the NSW Attorney General’s Department in Sydney in Corporate Finance and Financial Advisory.
Republished from It’s My Home magazine, courtesy of Genworth