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Money makeover, day four – find money and save

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by Peter Switzer

At the risk of being called dull and boring, again let me remind you that the main game has to be to find money and get it into income earning assets.

At the same time, you must have a serious look at the disastrous debt situation you might be in, and then you have to do something about it.

Let’s understand the nature of our problem.

How do we wind up in debt?

That’s easy — we want things our current income and savings cannot bankroll. Houses, cars, furniture and holidays are the key culprits, but some ambitious types do the debt-thing to start a business or to buy shares.

Along with homebuyers, these latter groups from Never Never Land show us all the way. In the end, there is good debt and bad debt, and borrowing for an asset that appreciates (goes up in value) or generates income is good debt. Cars are famous for depreciating the minute you drive them out of the caryard. A car is a classic creator of bad debt. (Apologies to car salespeople.)

How can we make ourselves less prone to debt?

If you are living a life that always ends up with a forever-rising debt-ridden bottom line, try doing the opposite. For the uninitiated, it’s called saving.

How do you become a saver?

There are lots of boring recommendations — like stop spending and you will instantly see savings but the best starting point is to do a budget.

Come clean with yourself

It’s the only way to reform your bad habits.

How do you do a budget?

Pick up a pen and fill in the blanks:

Weekly outlays
(Fill this out on a weekly basis. So if your Christmas holiday costs you $520, then divide this by 52 weeks and put $10 beside the Holidays category 1.)

What you spend $(write down the amount you spend)
1. Holidays
2. Mortgage/rent
3. Other loans
4. Credit/store cards
5. Food bill
6. Petrol
7. Alcohol
8. Cigarettes (give them up)
9. Train or bus fares
10. Books
11. CDs
12. Newspapers, etc.
13. Entertainment
14. Sports spending
15. Hairdressers
16. Gifts (Christmas, etc.)
17. Childcare
18. Clothing
19. Eating out
20. Council rates
21. Water rates
22. Car rego
23. Car insurance
24. Car repairs
25. School fees
26. Gas bills
27. Telephone
28. Mobile phone
29. Electricity
30. Pharmacy
31. Doctor fees
32. Dentist fees
33. Others

Weekly expense total $ ………….. (a)

Now for the scary bit…

Put your weekly take home income here $ ………….. (b)
Put your weekly expense total here $ ................. (a)
Deduct weekly income from expenses $ ………….. (c) Your weekly savings

Now, if you are game, take this weekly saving amount and multiply it by 52 to see what you are saving each year, (or you might be dis-saving if this amount is negative).

………….. (c) x 52 weeks = …………….. (Oh no!)

What this means and what you have to do

This exercise can be nearly as scary as standing on a set of scales after an overseas trip, or after Christmas day lunch. If it’s a big positive, you are sitting pretty in stage one of the ‘how to get rich’ stakes. If it’s a small positive, well, that’s a start. But if it’s a negative, you have a lot of work to do.

My tip is — GST your life

If I tell you to take $100 out of your pay each week, you may think: “Too hard!”

Wrong! Look at what you spend each week and ask yourself these questions:

Can you cut your $200 supermarket bill to $180?
Can you drink VB instead of Crown Lager?
Can you go to a restaurant and not have dessert?
Can you buy a 10 per cent cheaper wine?
Can you ask for a 10 per cent discount for paying cash?

This is how savings happens. Simply, adopt a ‘get even strategy’ against all the businesses that overcharge you because your spending life is chaotic and not planned.

Here’s an example:

Do you pay $3 or $4 for a coffee? If you drink three a day, opting for the former saves you $900 a year, which translates into a $30,000 saving of interest on $100,000 home loan!

A surprising and helpful hint

Experts say that 30 per cent of the bank fees paid we pay are avoidable and, in May 2009, the Australian Bankers’ Association said analysis shows there is considerable scope for households to reduce their total fees paid to Australian banks. By some simple changes in behaviour and using tools provided by banks, customers could save a reasonable amount.
We can be our worst enemies because we don’t make an effort daily, which costs us dearly over a lifetime of dumb money practices.

For advice you can trust, contact Switzer Financial Services.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

The Switzer Super Report is a newsletter and website for self managed super funds. With exclusive commentary from Peter Switzer and Paul Rickard the Switzer Super Report will help you maximise your after tax investment returns and grow your DIY Super. Click here for a free trial or subscribe today.

Published on: Wednesday, December 23, 2009