Just like diet and exercise, bad money habits are easy to fall into. Finance guru Effie Zahos shares her top tips for getting on top of your budgets in the new financial year.
Stop mindless spending
In the age of tap and go it’s all too easy to pick up a coffee and bliss ball on the go.
While $8 may not seem like a big deal it’s the small spending habits that often undo even the best of budgets. Spending just $8 a day adds up to $2920 over a year. In five years (and yes, time does go fast) that $8 per day adds up to $14,600.
To put it in another way, that mindless spending has cost you and a travel buddy an overseas holiday.
This year, vow to question the small purchases just as much as you do with the big ones.
Audit your household bills
When it comes to the rising cost of living, a big issue is that price hikes have been concentrated in non-discretionary items such as food, fuel, housing and health costs.
So, while you might be able to cut down on eating out and limiting your subscriptions you can’t switch off your energy or stop making mortgage repayments.
What you can do, however, is make sure you are not paying any more than you really have to on “non-discretionary” household bills.
Take the time to review all of your household bills because, collectively, they can make a huge difference to your overall personal inflation rate. Chances are there are a handful of regular bills that are wolfing down your pay packet.
This is where you need to take a good look at whether or not you can get a better deal, or maybe give a particular service the flick altogether.
Big ticket items like your home loan are where the big savings are but even small savings can add up.
First, identify all your bills and be sure to make a note of important information such as what you’re paying and what you actually get for that money.
For instance, if you’re looking at your internet plan, ask what is the monthly cost, the NBN speed and what data is included in your plan.
This will help you with the next step and that’s analysing your findings. Maybe your mobile plan includes 20GB of data but you never use more than 10GB.
If you think you may be able to make changes, then add this info to the notes you made in step one. From here you’re then ready to look for better deals.
According to Canstar’s cost of living tool you could be saving around $13,000 per year by simply swapping your regular household bills to either the cheapest in the market or best valued.
Budget for your bills
Say you get paid fortnightly but your mortgage repayments come out on the fortnight you don’t get paid, your car insurance is monthly, your energy bills are quarterly and your home and contents insurance is due annually.
How do you not ever miss a payment?
Well, the answer comes down to what budgeting system you have in place, and there’s no shortage of budget formulas to help you manage your budget.
A popular option is the 70:20:10 plan.
This is where you split 70 per cent of your income for everyday living costs (rent or home loan, transport, clothing, food and utilities), 20 per cent for saving and 10 per cent for splurging.
Using “buckets within buckets” makes it easier to achieve multiple goals. Instead of lumping your “everyday living” expenses into a single bucket, for instance, open multiple buckets (accounts) and give each of them a nickname.
You might have one account for school fees, another for household bills and so on.
If you want to be certain that you have enough cash in your bills bucket then a simple way to do this is to add up all of your bills for the year and then divide that figure by 26 (if paid fortnightly), 52 (if paid weekly) or 12 (if paid monthly).
Then set up an automatic debit so that every pay day this number comes directly out of your salary and goes into your bill bucket.
Once you’ve got funds flowing into this bill bucket you should never miss a bill again.
Claim cash backs, rebates & freebies
There are more than 400 different benefits available for personal and business consumers.
Are you claiming all the benefits and rebates that you’re entitled to?
Research from the Consumer Policy Research Centre found as many as two in five households could be missing out on energy bill discounts and concessions.
The region of most concern was the Australian Capital Territory (ACT), recording an alarming 31 per cent of eligible customers not cashing in on energy concessions of up to $750 a year.
This was followed by South Australia, where 38 per cent of consumers were missing out on around $242 a year.
In NSW, 35 per cent of consumers were missing out on $285 per year, while in Queensland, 29 per cent were missing out on savings of $372.20 for electricity and $80.77 for gas.
Tasmania had the smallest gap at 19 per cent.
Energy concessions in Tasmania work on a daily discount to eligible customers at a cents-per-day rate. The current concession is 157.4 cents per day.
In Victoria, the research showed seven per cent of concession card households do not receive their concession on their electricity bill, 12 per cent miss out on concessions on their gas bill, while 22 per cent do not receive their concession on water bills.
Invest little, invest often
Steadily drip-feeding money into investments – also known as dollar cost averaging (see box, left), is a great way to build wealth slowly.
Investing small amounts on a regular basis has the benefit that, over time, you’ll pay more of an average price for your investments. Of course, you do need to watch the fees.
If a fee is charged each time you invest you run the risk that your transaction costs could offset any potential gains.
For instance, if you’re buying $500 worth of shares and your broker charges you $15 a trade, this represents three per cent of your total capital, which means your shares will have to appreciate three per cent just to break even.
If you only have small lump sums to invest, it might be worth waiting until you have parcels of $1000 or more before buying your shares.