BudgetMama

Don’t you find nothing brings our finances closer to the front of our mind more than Christmas? A Popular topic of conversation around September is, ‘Oh my gosh, it’s nearly Christmas already!!!!’

As we begin to see signs appear saying ‘Layby Now for Christmas’ and ‘Taking Christmas Orders Now’ we can’t help but begin to get a little stressed, especially if we are already living that pay cheque to pay cheque lifestyle already.

Now there are all sorts of ways to relieve that stress, but it’s a little late for me to get into that only two days before Christmas! But, what I would like to talk about today is preparing for the year ahead, as with Christmas upon us and the New Year looming around the corner there is no better time than now to start thinking about your budget.

We’ve heard a lot of doom and gloom over the past year about corporate collapses, mortgage crisis, rising unemployment and the global economic downturn, however, it is possible to ride through these difficult times by taking one evening to really have an honest look at our spending habits and see where we can make improvements.

Take some time out as early in the New Year as possible to pull out old bills and note the pattern of spending they represent. For example, your power bill may reflect much higher usage at certain times of the year due to heating or air conditioning. Once you have identified this pattern it will be much easier to prepare for it so that paying those higher bills doesn’t cause undue pain in the year ahead.

You may be wondering how knowing you’ve got big bills coming will change the pain they cause. Well, it’s really as simple as calculating a figure to set aside out of each pay cycle to put towards those future bills that will make your life so much easier.

Preparing for future dated expenses is one of the most important aspects of planning and budgeting successfully. It’s easy to feel that some weeks you have little or no bills to pay and therefore have more money to indulge in other areas, however this is really an illusion because on the weeks you do have a big bill arrive you will really feel the strain on your budget trying to cover it out of one pay cheque. In fact, many people I talk to about budgeting tell me that they feel they are in a constant catch up mode because having to pay a big bill meant they got behind in other commitments and so begins the cycle of stress trying to make ends meet.

So, get a bit savvy with your finances. Look over 2009 and work out how much you actually spent on bills over the entire year. Divide that figure by 52 and you will have a weekly figure to set aside. Set that money aside somewhere separate from your regular everyday bank account, it could be a money jar, but a free online bank account is ideal.

If this concept is entirely new to you and you have absolutely no funds set aside for bills then you can expect to still have weeks where you will need to top up your jar/bank account to cover a bill, but don’t give in, persevere and stick to that regular set aside figure, and within a short time you will find that your household budget will be so much more manageable. In fact, you will even find that you have more money to indulge on other things than you did before as you will be breaking out of that stressful lifestyle known as ‘robbing Peter to pay Paul’ and replacing it with a budget that you are in control of, rather than the other way round.

Bring on 2010!

Let me just say it straight up, ING, they offer the best savings accounts out there and I’m not getting paid for saying so…though perhaps I should!

I’ve had an ING Savings Maximiser for a few years now as they consistently offer higher interest on savings than others banks without any fees or restriction on balances or withdrawals. However, as ING has no branch access this account needed to be linked to another account and whilst you could withdraw at any time you had to do it by transferring your money into the ‘regular account’ it was linked to, and this could take up to 48 hours. Still, it has been worth it as far as I’m concerned because it’s a SAYYYVings account which by definition means I’m supposed to be sayyyving, not spending, therefore I felt not having immediate access to it was a huge bonus as it meant I was less likely to dib into it on impulse.

But now, halleluyah, ING Direct are now offering an everyday account of their own and it’s called an ORANGE account (you’ll know why when you go to their website), and from someone who is always on the lookout for the best savings accounts out there, I’m giving this one a HUGE tick of approval.

Here’s why you should open one….

First, there are no fee’s

I’m talking no monthly account keeping fee. Now, other banks also offer fee free banking, but it’s usually associated with certain conditions, such as maintaining a minimum balance, or depositing a certain amount each month etc. With ING’s ORANGE account there is literally NO MONTHLY FEE! Deposit as often as you like, withdraw as often as you like, there is no fee. Though they do kindly ask that you do have your salary deposited into it, because lets face it, the banks earn interest of their own on our funds so your helping them keep the costs down by actually having funds go through the account. Now they do have fee’s for other services like getting bank cheques etc, or missed payments charges, but they are way less than any bank I have ever banked with.

Second, there are no ATM fee’s…

This is a biggie for me. You see, many might say, well, if ING don’t have branches and they don’t have their own ATM’s then we are going to get slugged with that ridiculous $2 fee for using foreign ATM’s! Nope, no way, with your ING ORANGE Account you can use ANY ATM and you will not be charged anything, nothing, nada, zip! So, no more walking all over town to get to your own banks ATM to avoid that stupid fee.

Thirdly, they’ll pay YOU up to $60

For this month only as an incentive to take my advice and open one of these fab accounts they’ll pay you up to $60! To get the bonuses all you need to do is have your pay, pension or whatever income you receive paid into your ORANGE account, and bang, same day they credit you with $20. Next you need to use your card for an eftpos transaction and get a $200 cash out and bang, another $20 is credited to your account. Then, set up one of your direct debits (yes I hate them but most of us have at least one) to also come out of your new account and BAM, another $20 is credited to your account. I opened my account and had my card within a couple of days (which is a VISA debit to by the way) and within the week I had earned my $60 in bonuses, I was totally wrapped!

So there you go, three obvious reasons why you should bank with ING, so, go there and do it now => http://ingdirect.com.au/everyday/orangeeveryday.htm and I should point out here that this is a totally honest, no incentives for me promotion….so if anyone from ING is reading this, drop me a line and we can talk advertising space on my blog because I love ING!

Of course, there are other reasons why I think ING has the best savings accounts in Australia today, like the fact that they are actively involved in environmental causes, that’s always a plus in my books, but at the end of the day we all need to be smart with our money and if you make ING your number one bank you’ll be doing just that!

1. One of the most valuable personal money management tips I can offer is to use a budget planner and you can get mine, the BudgetMama System right here. Having a visual idea of your finances makes the process of keeping track not only easier but more accurate and of course also provides you with that important feeling of control.

2. Opening an online savings account offers you a much higher interest rate than a branch account. Having no branch or ATM access also means you are more likely to keep your savings than dip into them on impulse as withdrawing from this type of account requires transferring the funds into your normal bank account and usually takes at least 24 hours.

3. Don’t save at the expense of your social life, but don’t let your social life stop you from saving. Studies show that people who include an allowance in their budget for enjoyable activities are more likely to stick to their budget and therefore save more in the long term. When you resent your budget and feel restricted by it you will be more inclined to break it and ultimately loose track of the entire thing. Remember, life is all about balance.

4. Review your budget on a regular basis. By establishing the habit of sitting in front of your budget planner and bills one night a week you will be developing a habit that ensures you are always on top of things. In time you will begin to notice ways in which you can improve your budget while freeing up more cash, or perhaps notice a few leaks that need to be plugged before they get out of control.

5. When it comes to regular savings, change your mindset. To illustrate; when you receive a bill in the mail you know you can’t avoid paying it, there is no way around this, it is a social norm. Start thinking of your savings account as a bill that must be paid and even if that bill is only $5 a week; pay it before you do anything else.

6. These days most people (in the first world at least) receive their pay cheque as a direct deposit into their bank account. Decide on an amount of money you can reasonably save out of each pay and ask your boss or payroll department to split your pay cheque with a set amount going straight to your savings and the rest going to your normal account. With that small amount out of sight it is also out of mind and you won’t miss it.

7. Did you know that by shopping at convenience stores like the gas station and mini mart you could be paying between 25 – 40% more than you would at the grocery store? So, shop at the grocery store.

8. Pay loans more frequently; by paying down debt on a weekly or fortnightly basis rather than monthly you will seriously reduce the interest on the loan in the long term.

9. Recognise yourself and know your weaknesses. It’s okay to have weaknesses, we all have them, for some it’s chocolate, for many it’s shoes, but whatever your weakness is, don’t put yourself in front of temptation. If you know you can’t walk past your favourite shoe shop without hearing angels sing at the site of a gorgeous pair in the window; then take a different route.

10. Finally the last of my personal money management tips is this: learn to save money, emphasis here on the word ‘learn’. For most of us a savings habit does not come naturally. Studies show that in order for an action to become a habit it must be done over and over again, I think the standard here is 21 days. But we all know that good habits can be much harder to imprint on our brains than bad ones, so start off small. A great way to learn to save is to choose something you want that is small, say a digital camera for $300. Be specific about your goal by choosing the actual camera model you want then get a catalogue picture of it and stick to the fridge. Now we all know these days purchasing items on store finance is sadly more the norm than actually paying for it with cash, but don’t do it. Decide to prove to yourself that you can buy this item by saving your own money and remind yourself that you will be saving on finance fee’s as well as hefty interest. You know you need to save $50 a week for the next 6 weeks to get that thing which you desire, so whilst keeping your visual goal in mind set about saving that $50 and then reward yourself by paying cash for that camera in 6 weeks time. As you get into the habit of saving, believe me you will actually begin to enjoy the process of setting goals, visualising them, working towards them and then rewarding yourself at the end.

BudgetMama Logic #6

Prepare for Future Dated Expenses

One of the most important practices of a BudgetMamaTM is that of setting aside a little money each budget cycle to cover future dated expenses. This is absolutely essential if you are going to gain control of your finances.

Most people have the same kind of standard household expenses which are billed regularly such as insurance, car registration, phone, internet, gas etc. These billed expenses should now be listed in the expense account section. (We will come back to the transfer section later).

Now calculate the amounts and regularity of these bills. To do this you will need to look back at past bills, (and if you haven’t kept them you’ll need to do a bit of brain bending to try and remember roughly what they were) to work out what is your average spend on say things like power…phone?
Enter those amounts in the approximate column that corresponds with the date you expect to pay it.

To work out your set aside figure you need to have a look at previous bills then break them down to a weekly, fortnightly or monthly cost depending on your chosen budget cycle.

For example, let’s say you are working on a weekly budget cycle. If you were paid $500 per week, and you get billed around $300 for your phone every three months, you just work out the weekly set aside figure by dividing the quarterly bill by 12…..there are 12 weeks in 3 months right?
In this scenario you would need to set aside $25 every week from your income to cover your phone bill.

If your budget cycle is fortnightly, divide the bill by 6, so then $50 out of every cycle needs to be set aside.

And boy will this help you really start analysing your phone bill……do I really need to make that call???

The amount you come up with will be the amount you enter into the ‘transfer to expenses’ section at the bottom of the everyday budget section. This amount will be automatically transferred to the ‘expense account’ section where a running balance of that account is also calculated for you.

By using the BudgetMama Budget Planner Worksheet you will be able to see at a glance if you have enough funds in that account to cover any future dated bills and make any adjustments should you need to.

You can watch a short demo video here to see this in action.

NOTE: If you have not been doing this for a while already you will need to set aside more funds in the early stages of your new budgeting system. …. i.e. you’ll be in a catch up phase for a while and need to top up here and there.

However, once you get into the habit of setting aside a specific amount each cycle you will begin to notice you always have enough money in your expense account to cover a bill as soon as it arrives.

If you want to transfer money to your savings account enter the amount into the ‘transfer to savings’ section and it will also transfer automatically to the savings account section.

And just in case you are confused, it will start coming together very soon, I promise.

NEXT

BudgetMama Logic #5

Identify a General Budget

Time to focus on your general everyday expenses. 

So, what should be considered as your everyday budget?

Everyday Budget = Everyday Account.

In other words under the heading of Everyday or General Budget list all the general things you spend on that are not billed; so things like groceries, fuel, lunch, lotto, movies, birthday presents etc.

All of the things listed in this section will be paid for or purchased with the funds in your everyday account, which is of course the account your pay goes into.

Note: You should be able to access this account easily using eftpos or debit card.

Once you have listed the things you will pay from your everyday account your next step is to enter the amounts you wish to budget for all of those things next to the item and of course in the same column that has your income.

Most people have fairly standard habits and therefore you should have a pretty good idea of how often you eat out, catch a bus, or what you spend on groceries. The important thing to note is that by using a spreadsheet you can easily go back and change the amounts should they differ and all the other relevant calculations will automatically change also. So, using the BudgetMama^TM Budget Planner Worksheet means you can set a budget for what you intend to spend in the future, but you can easily change it and thus keep accurate track of where your money went.

You may also include in this section things like clothing, vet, video hire and even your rent or mortgage if you pay it in the same cycle as your income is received.

You can refer to a video to illustrate this by clicking here.

The next step then is to work out how much money from your pay cycle now needs to be transferred into your expense account so that you absolutely know that you will have the funds to cover a bill when it arrives. This is where the power of the  BudgetMama^TM System really kicks in!

NEXT