Is doing a budget your worst nightmare?
Everyone has a different attitude toward budgeting for life. For some it is a nightmare, for others it is a top priority.
Whichever way you look at it, we all have a certain kind of lifestyle to maintain and it pays to have some idea of where your money is going.
Organising and managing your expenses and income need not be a laborious task and you will be surprised at the peace of mind that can come from ‘doing a budget’.
The key is to ensure that you strike a good balance between being too anally retentive about a budget or not giving it any importance at all.
These are some of the main areas of expenses for maintaining a decent lifestyle:
- Regular Non-discretionary expenses
- Regular Discretionary Expenses
- Irregular Discretionary Expenses and
- Worth Living Expenses
1. Regular Non-Discretionary Expenses are all those expenses that come in the form of a regular bill in the mail whether you like it or not. If you don’t pay these bills something is disconnected, you can’t use it or you receive a nasty letter from the council or landlord.
a. There are those perpetual expenses you will have whether you are working or not. Rates, water, utilities, cable TV, insurances, car registration, telephone, body corporate etc.
b. Then there are non-perpetual expenses which is either the mortgage repayment, loan repayment or the rent, which by or into retirement you won’t have.
2. Regular Discretionary Expenses are those cash items you spend on week in week out. The nature of which is that you have nothing to show for it at the end of the week, fortnight or month as you have consumed the item. You have eaten it, drank it, smoked it, enjoyed it, watched it and or consumed it in some other manner.
3. Irregular Discretionary Expenses are all those other things you buy or spend money on over the year which fall outside of the two categories above. Clothing, dental, medical, hair care, educational, regular travel, car servicing, gardening, pets, hobbies, sports etc.
4. Worth Living Expenses are the bucket list costs plus one off big expenditures such as the renovation, the move to downsize or upsize, the new car, the big trip etc.
Items 1 to 3 above are funded in retirement from your core income producing portfolio which is sacrosanct. Item 4 which, may include the annual overseas trip in retirement, is funded from a non-core investment strategy and can be played with. That is if the investments do well in one year you then consider business class or first class.
There is no doubt that doing a budget can give you greater control and understanding of your spending and saving habits and will help your financial health down the track.
This article was brought to you by Wayne Lear, Director of Shield Wealth.