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Hewison Insights

Budgeting made easy

Chris Morcom
Partner/Private Client Adviser
22 Nov 2013

One of the most common issues I see when people approach me for advice is that they do not have a spending budget in place.  ‘Oh no!‘ you groan, another article about earning more, spending less.  Well yes – it is.

Knowing where your money goes is the first and fundamental step in building wealth.  Without being armed with this knowledge, it is like setting out on a 150 km bike ride without your water bottles…you might make it, but are unlikely to get to your goal without pain and suffering.

Review spending habits

First, you need to know what you spend.  For those of you who put everything on a credit card (not my preferred method), download or find a copy of your last 12 months statements and start adding up your expenditure.  For those that don’t put spending through the one place, you will need to drag out your bills, and consider all your expenses.

You might find the budget planning tips at https://www.moneysmart.gov.au/managing-your-money/budgeting helpful.  This is a government website administered by the Australian Securities and Investment Commission and has lots of great tips and tools.  Check out their apps, such as TrackMySpend which can help work out how much you spend.  They also have a budget planning tool.

Once you know how much you spend, then take a look at the money you have coming into your bank account…is it more or less than what you spend?  If it is more, excellent, you have room for savings and wealth creation.  If your money in is less than money out you have a problem, and you really must find ways to either reduce your spending or increase your income.

Be prepared for big expenses

The real power of budgeting comes from putting money aside in advance for expenses and spending you know are coming up.  For example, in my household the car registration, insurance and the house insurance are all due in the same month (I pay annually to save on the premiums).  That is a lot of cash to find in one month, but we know how much those bills are going to be, so we put money aside all year.  The feeling of control and security is great.

Get a savings plan in place

The next step is to get some structure around your planning.  I advocate using online bank accounts such as the ING Direct Savings Maximiser or the RaboDirect High Interest Savings accounts – you link these accounts to your normal bank account and they can be a real help for organising your budget and savings.

The diagram below is one way to arrange your cash flow to ensure you can meet your spending and also start getting ahead with your savings.   If you already have all this covered and you are considering what to do with your Investment savings, then it is time to get some professional financial planning advice.

Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.