How To Make The Best Use Of Your Income
Newcastle Herald
Monday January 14, 2002
You will probably earn more than $1million in your lifetime. Make 2002 the year you take charge of your finances by putting a simple budget strategy in place.
MOST of you are back at work now and you're probably thinking about the best way to manage your money in 2002.
Just be aware of a basic truth: becoming well off financially is not a matter of earning more money but a matter of using the money you have in a better way.
The only way to make the best use of your income is to draw up a money plan. The correct term for it is budget.
Remember, you'll probably earn more than $1million during your lifetime, so surely it makes sense to stretch it as far as you can.
The irony is that you are probably aware of the importance of having a budget to help you manage your money.
But you may not have got around to starting, or you may have made an effort but found that the bookkeeping was all too difficult.
It's too late to change what has been, but you can ease the pain in the future by putting a simple budget strategy into place. I call it the `Claytons Budget' - the budget you have when you aren't having abudget.
It's not complicated, anybody can do it, and it takes about an hour to set up.
Find a sheet of paper and write down your fixed outgoings such as house repayments, loan payments, club fees, rates, car registration, insurance and so on. Add these up and divide by the number of times you get paid. If it's fortnightly that will be 26, if it's weekly 52.
Let's suppose it comes to $15,000 a year and you are paid fortnightly. One 26th of $15,000 is $580. That is the amount you will need to set aside from each pay to cover the items listed. Deposit the $580 into a separate bank account and use it for the sole purpose of paying the expenses you listed when you arrived at the original total.
Provided you don't fall into the temptation of dipping into the account for other purposes you will now have all those items under control.
Next, estimate how much you spend a year on predictable expenses such as power, telephone, gifts, newsagent and hairdressing. Divide these by the number of paydays, and put the appropriate sum into a separate account as well.
After that, figure out what you spend over Christmas and start making regular deposits into a Christmas account. While you're at it, start a holiday account too.
Look what you have achieved. You have now provided for all your regular expenses, as well as Christmas and holidays, and never again will you have to worry about paying those bills. In fact you will look forward to the bills coming because you will have the money in the bank to pay for them.
If you now pay cash for all other consumer spending you will be on the right track even though you may have to tighten your belt if you get an unexpected costly emergency.
In any event you will certainly be ahead of most of the rest of the population - you will be living within your means and in control of your finances.
Some people object to this strategy on the grounds that there may be more bank fees involved. True, this is a possibility, but the feeling of being in charge of your life will more than make up for it. Noel Whittaker is the author of nine books on personal finance. More ideas and advice at moneymanager.com.au
© 2002 Newcastle Herald
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