_edited.jpg)
Cash Flow and Budgeting
To ensure you achieve your financial goals, it is important that you understand your own financial situation.
This document contains factual and general information only to assist you in understanding
financial planning concepts. It is designed to be used in conjunction with a Statement of Advice.
Cash flow
Managing your cash flow wisely – what comes in and goes out – can have an enormous impact on your financial goals. With personal debt levels on the rise, it is important not to lose sight of cash flow basics: spend less than you earn and you will create a surplus; spend more than you earn and you will increase your debt, and may be charged extra interest.
3 steps to help manage cash flow:
Establish a budget and stick to it
Aim to have some surplus funds each month
Use the surplus to pay down debt, invest or put aside as savings. By doing this, you can:
Harness the quiet achievers of net wealth; surplus income, compound interest and time.
Manage the silent assassins of net wealth; lifestyle expenses, debt and taxes.
Establish a budget
The best tool for finding extra money is by using a budget. Firstly, you need to set a budget. This means looking at the things you need versus the things you simply like to have, or want.
When you need to trim the budget, cut back on the ‘wants’ first – things that aren’t essential for everyday life.
Don’t cut out all your wants entirely, because if your budget is too tight, it’s not going to work. You may want to set a budget for a few months and record what you spend against this. You will then know if your budget is realistic or needs to be altered.
Your budget needs to account for a few unexpected expenses, otherwise it won’t work. One way to deal with this is to build in a buffer of, for example 5–10% above your expected expenses.
There are some calculators on the ASIC Money Smart website that you can download and use for free. www.moneysmart.gov.au
Keep watch on fees and charges
Every dollar paid in fees, especially 'ongoing fees', reduces your income or earnings from investments, so it pays to keep a close eye on fees and charges. For example, selecting the right deposit and payment accounts or changing the way you deposit, withdraw or transfer money may save you money by reducing fees. Additionally, if you use a bank ATM not connected with your bank you can be charged an ATM fee. Many banks now offer a wide variety of accounts where no fee is charged.
Did you know?
A modest daily ‘two coffee a day’ habit could cost nearly $3,000 per year ($4 x 2 coffees x 365 days = $2,920) - being mindful of spending really adds up.
The amount of interest over the life of a 20-year mortgage on an average home loan in Australia exceeds the total amount most will have accumulated in superannuation when they retire.
Using surplus income to reduce debt can make a big difference to the amount of interest you pay.
If you use a non-bank ATM four times a month each month and the fee is $2 per transaction, you will be charged $96 in fees p.a. that could have been avoided by withdrawing money from your own bank.
The good news is: managing cash flow wisely is one of the simplest techniques to achieve net wealth, and anyone can do it. If you need help, talk to your adviser about how they can assist you.
1 ASFA, Australian Bureau of Statistics, Feb 2016 and ASIC Moneysmart mortgage calculator.
Factual Information Disclaimer
This information has been provided as factual information only. We have not considered your personal financial circumstances, needs or objectives.
Whilst all care has been taken in the preparation of this material, it is based on our understanding of current regulatory requirements and laws at the publication date. As these laws are subject to change you should speak with an authorised adviser or relevant professional for the most up-to-date information. Any case studies, graphs or examples are for illustrative purposes only and are based on specific assumptions and calculations. Past performance is not an indication of future performance.