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Focus on your spending and get out of financial hot water

05 June 2017

Financial stress

Now is a good time to engage in some courageous economic self-analysis.

This guide could help you out of financial hot water. And if financial stress isn’t an issue for you, but you’ve nothing to show for the past year, you can always use the ideas we describe here to help you accumulate savings by spending more mindfully.

Step One: Freeze your spending

You can’t get ahead if you keep buying things. What about all those coffees at work. If it's costing you $3.50 and you have two a day at work, that’s $35.00 a week. Stop take-away lunch. At $10 to $15 every time, we're talking a $50 to $75 savings a week.

Cut your transport costs by walking some or all of the way to work. Catch public transport rather than driving.

Skip Friday night drinks or try going dry for a month. Alcohol is expensive and it's hard on your health.

Take a deep breath when you next consider indulging in retail therapy. Are six different bottles of hair care product really necessary?

Step Two: Income and expenditure

Write down what is coming into your account (what you’re earning, and remember that may not just be wages) and what’s going out – everything on which you’re spending your money. Look at credit card statements and invoices, bills, etc. for a month or so to get an idea.

Step Three: Needs and Wants

Classify your spending into ‘Needs’ and ‘Wants’.

‘Needs’ are things you have to buy or spend your money on to live: rent; mortgage; credit card debt; utilities; food; transport to work; petrol; child care; school fees; etc.

‘Wants’ are what the experts call, “discretionary spending”. Surprisingly, internet access is not a necessity.

Again, to help trace your spending use your credit/debit card and bank statements, bills, invoices and receipts.

For those smaller items that slip through the credit cracks, such as coffee, break your day into morning, lunch, evening and think about what you buy in those times and make a note of the costs.

(I bet you’re beginning to see the patterns - and they’re not all pretty.)

Step Four: Think about the future

Think about your bills, what you owe and to who, etc. When are they due, what are they for, how much will they be? Put the answers to these questions - and any others that help you get an idea about your future owings - all down on a calendar, or somewhere you look at regularly.

Step Five: Reset your priorities

Reset your priorities to get your ‘Needs’ (credit card debt, mortgage, bills for water, the car, etc. etc.) on top of your spending list and paid. Once your head comes up above water there's money for discretionary spending.

When you know what you have coming in, and have put aside what must be paid out each week or month to clear any debt and met your needs, you can save what is over and accumulate a backup for emergencies, or toward a big ticket item such as a deposit on a new home, car, holiday, etc.

If your bills - must spends - are overwhelming, repayment options may be available. Having a conversation with someone at a bank or a debt counsellor, etc. can help.

Free saving and budgeting apps available iOS and Android

MoneySmart’s Trackmygoals and Trackmyspend: simple apps that do exactly what they say.

Pocketbook is a budgeting app. The app connects to your bank account, so you can track income and expenses. If your accounts (including credit cards) are not with one of the banks integrated with Pocketbook, you won’t benefit from the app’s key advantage and will have to manually enter your income and expenses (similar to other apps).

Other ideas

Ebay/gumtree: Use it to turn your trash into treasure or to find bargains rather than buying at full price.

Unsplurge: This app asks for no banking, credit, or loan information. Just set a goal and start logging your savings progress. Unsplurge can send you notifications to remind you to save. iOS only. The app doesn’t help you track spending and expenses.

Grocery shopping apps can also be useful for streamlining the weekly or daily shop to save money, keep you to the list, compare prices, etc.

Investment app

Acorns links to your bank account. When you spend, Acorns rounds up your transaction to the nearest dollar and invests that change in a diversified portfolio (EFT) at your chosen level of risk.

This is an investment portfolio, subject to market fluctuations. You will also need to pay tax on all realised capital gains. Check out the website for more information on costs and terms and conditions.

The articles represent the views of the authors and not necessarily that of the Bank.You should seek independent professional advice before acting on any matters set out in the articles.