When doing up a personal budget you may realise you don’t have as much net income as you thought or you’re spending is higher than what you anticipated.
If things are a bit tight you may be able to spend less without making too many radical changes to your standard of living.
Making small changes can make a significant difference over the longer term. Here are a few ideas:
• Avoid buying things on impulse;
• Pay your credit cards off in full each month when able;
• Take your lunch and snacks to work;
• Avoid vending machines;
• Instead of going out to dinner, entertain at home;
• Use coupons to obtain discounts such as petrol vouchers. Keep in mind that sometimes you need to spend more to get the voucher in the first place;
• Each pay, put a little savings aside. You could set up a savings account specifically for this purpose. Just watch out for additional account fees;
• Buy your clothes at sale time;
• Take on some work that you have been paying someone else to do; and
• Sell some unwanted items online. One person’s junk is another person’s treasure.
In addition, reducing more exciting or addictive expenses can be a little more difficult, but they tend to provide larger financial rewards:
• If you smoke take steps to quit (good for the body);
• Drink less alcohol (good for the body too);
• Don’t purchase season tickets; and
• Trade in your luxury car for something cheaper to buy, fuel and maintain.
If you are still finding it hard to reach your savings goals, re-evaluate them. They may be overly ambitious. You could change the time frame or change the goal.
You can use our Savings Calculator to see how a regular saving grows over time. Alternatively, you can see what benefit a little extra off your mortgage each month adds up to with this Mortgage Calculator.
Importantly, often luxury items are sold to us as necessities. For big purchases it is worth taking your time. Do your research and haggle. Take a day or two, a week or two, or a month or two, until you’re crystal clear that this is a wise spend of your money.
You could also benefit come tax time for keeping the receipts of things you buy for work (if they are not reimbursed).
Here are some expenses that you may be able to claim as a tax deduction:
• Home Office expenses;
• Income Protection premiums;
• Work travel in your car; and
• Expenses for further studies such as stationary.
These kinds of expenses are worth tracking and speaking with your Accountant about.
Doing the numbers
The little things add up.
Take coffee and alcohol for instance. Let’s say someone consumes, on average, two bought coffees a day at $3.50. Over the course of one year that is a grand total of $2,528. Putting these coffee savings into a high interest savings account (some banks are currently paying 6.01% p.a) could leave you with $16,217 after five years (assuming the rate was sustained over that period). Not bad for giving up coffee, or any habit of similar expense for that matter.
The amount spent on alcohol can be an even bigger saving.
It would not be unreasonable to expect your average young person who enjoys a night out inclusive of dinner, drinks, nightclub entry and taxis to spend upwards of $150 on each night out.
If this $150 per week was saved for an entire year, the total savings would add up to as much as $7,800. This would be enough to buy a decent second hand car, spend a good three to four months backpacking around Europe. Or saving this amount over say a five year period could reach anywhere between $40,000 and $50,000, depending on interest and tax – enough for a deposit on a home.
The small decisions we make on a daily and weekly basis can have a considerable effect on our longer term economic health. See what little differences you can make.
Related Articles; 6 steps to financial discipline.