We all know we are supposed to budget, but the reality is that over a quarter of New Zealanders live payday to payday with no back-up savings for emergency situations, AND only 40% follow any kind of a budget.
With stats like that, it’s no surprise that financial worries are one of the greatest stresses of our time. They can exacerbate everything from depression and anxiety, to insomnia and relationship breakdowns. And guess what, when you’re struggling financially, living in denial is not going to help the problem go away! Tackling it head on is the way to go.
For some of us budgeting is a bit of a mystery. Money slips through our fingers and each week seems to find us in more debt, with the trusty credit cards coming out whenever the cash isn’t available.
What would you do if you suddenly found yourself with an unexpected bill for car repairs for $500? Could you cover it without increasing your debt? Too often, the answer is “not a chance”. This can sometimes be because of low income, but it can also be because you have no control over where you spend money.
Here are a few simple and logical tips to get you started on reining in your spending to a manageable level.
1) Understand what the goal is
Budgeting is all about spending less than you earn, and leaving a surplus of savings that will give you that back-up for a rainy day. The goal is to control your spending, and make informed decisions about where your money is going so you can still cover what is most important to you. Keep your eye on the goal. Writing absolutely everything down in the name of “budgeting”, but still coming out at the end of the week spending every cent you’ve earned will get you nowhere!
2) Track your spending for a while so you know where your money goes
Aim to track your spending by writing it all down for a month. Be painstaking and try not to miss anything. Carry a notebook and jot down your purchases, use an app, or add it to “notes” in your phone – whatever works for you.
This will give you a really accurate picture of what you are doing with your money. It can blow your mind when you realise how much all those little purchases add up to.
You’re not alone if you’ve reached the end of the week and have no clue where your money has gone! This exercise will make it all too clear. A month is ideal, but a week is better than nothing if you really can’t stay disciplined enough to track for a month.
3) Save first
Decide what you need to save per week. Be realistic and don’t make it so extreme that there’s no chance you’ll stick to it.
Transfer this money into a separate account first. Pick one that gives you an incentive not to withdraw – such a an account with higher interest if you make a few deposits and no withdrawals in a month. Talk to your bank and explain what you are trying to achieve and they’ll guide you.
Even saving $50 a week will give you $2600 plus interest at the end of the year – good emergency money to have in your account.
4) Use your plastic, but not your credit card
Using EFTPOS rather than cash will help you with tracking. Most internet banking programs allow you to categorise your debits (amounts spent) so that you can get a summary at the end of the month.
Steer clear of credit cards if you are already having trouble managing your finances. It’s very easy to spend more than you’ve earned with a credit card. But certainly use a bank debit card which accesses your own funds (not credit) so that all your purchases are laid out on your statement.
Credit cards can come in handy later to even out spending across expense peaks, once you are disciplined enough to make sure you can pay the whole thing off each month. If you are already in the position where you have amassed a fair amount of credit card and other debt, and you are paying high interest and struggling with repayments, it’s a good idea to look at debt consolidation before the situation gets any worse.
A good debt consolidation company will help you roll all these debts into one with a single interest rate and manageable repayments to help you get out from under this burden and get your finances back on track.
5) Work out three main categories that you overspend – and change!
If you’re honest with yourself, the areas where you overspend will become crystal clear after you track your purchases.
There’ll be areas where making changes would be difficult, although not impossible. For instance, you might spend $70 a week on petrol, and $300 a week on rent. Both of these are constant costs without major behavioural changes (like moving house). They’re not impossible to do, but it’s probably easier to look at the items you can change more easily first.
Start with those obvious categories that you can change, and focus on three that you can work on straight away. In some cases, adjusting these will be enough to get you back into the black at the end of the week.
For example, you might see that you habitually have a blow out when you go out on the weekend – dinner, drinks and entertainment can cost you plenty. Or you might overspend on clothes, alcohol, fast food, even lunch every day at work. The financial picture is a little different for each of us.
Run with these initial ideas, and see whether this is enough to make you budget savvy and able to start saving. If you still find that saving is an impossibility, you may need to make more drastic cuts or look at ways to supplement your income. You might benefit from moving somewhere with lower rent, or catching the train instead of driving…but start with the simple items first.
If you need help with your budgeting systems or consolidating your debt, you can apply here for a fast free online loan appraisal.
Don’t live in denial and compound the problem. Crester Credit are a reputable New Zealand based credit company that can help. Give them a call – talk to their finance specialists and see how you can get control of your financial future.