By now the vast majority of Australian workers should have received their annual Payment Summary. For many people, the first response on seeing how much they earned over the past year is, ‘Where did all the money go?’
The average adult full time income for 2012 was $75,587. That’s $1,453 each week. It’s a fair chunk of money, and while these are before tax figures, it’s worrying that many Australian families struggle to make ends meet.
I know life is expensive. And I reckon it’s a fair bet that you think if you earned an extra few thousand dollars, you’d be okay. But you know what? You probably wouldn’t.
That’s because our expectations and our expenditures have a habit of growing in line with what we earn. Put simply, we rapidly learn to spend any extra money we make.
Taking control of your money doesn’t mean living like a miser. However becoming financially comfortable does involve following one simple principle – spending less than you earn.
There is no shortage of tools to help here. The government’s MoneySmart website (www.moneysmart.gov.au) features a useful online budget planner, or take a look on your bank’s website, many also feature budget outlines you can download.
If you have a smart phone there are plenty of apps available that support good money management. One of my favourites is MoneySmart’s ‘TrackMySpend’ app.
Sticking to a budget is the best option for getting spending under control. But if it doesn’t work for you, try the simple strategy of paying yourself first and spending the rest.
The idea here is that you only have to make one budgeting decision, which is: what proportion of your income can you save?
If you reckon you can save 5% of your income, as soon as you get paid transfer the money from your everyday account into a high interest savings account. Now, you can take your other 95% and spend it in whatever you choose. Just don’t touch the 5%.
After a few months, unless your finances are very tight, you won’t miss the money you’ve set aside.
If a pay rise comes along add 1% or 2% to the 5% before you learn how to spend the money.
It’s an easy way to build up a very healthy savings habit without following a budget. Bear in mind, you cannot spend more than 95%, or your chosen percentage of your take home pay. That means no maxing out your credit card, no personal loans and no other forms of debt.
I reckon it’s worth a shot to have a go at either following a budget or using the ‘pay yourself first’ plan. It could mean that by this time next year you can look over your payment summary and see just how much of that money is sitting in a separate savings account or other investments. It’s a lot more rewarding than wondering how so much money has just slipped away.