(Acknowledgement-   a number of the ideas for this discussion were extracted from "Making Money Made Simple"  by Noel Whittaker &  Roger Moses)

Becoming well off financially is not a matter of earning more money but of using the money you have in a better way. The only way to make the best use of your income is to draw up a money plan. The correct term for it is a budget.

All successful businesses draw up budgets in advance to forecast future business, cashflow and purchase requirements, and then endeavour to maintain the guidelines set by their budgets. The rationale of drawing up personal budgets is no different, albeit it on a smaller scale.

Drawing up a budget sounds pretty frightening but is really very simple. You don’t need any special qualifications to do it. It is just a list with your expected income listed in one part and your expected spending and savings on the other.

Cash budgeting is usually carried out on a monthly basis (sometimes divided into smaller periods) and covers a period from three six or twelve months in advance. It is usually difficult to make accurate estimates beyond this.

STARTING ON YOUR BUDGET

Before you prepare a budget you need some basic information about the way you are earning and spending to date and find where your money is going now.

What do you earn?

Prepare an analysis of what you earn currently. Write down the amount of your "take home pay" and then convert it to a yearly amount by multiplying it by 52, 26 or 12 depending whether you are paid weekly, fortnightly or monthly. This figure is your net yearly income and will indicate all you have to live on for the year. The following table is an example of this:

ANNUAL INCOME WORKSHEET

Analysing your Spending?

Prepare a similar worksheet relating to your spending habits.

Split your spending into three categories, as follows:

** Essential Fixed Spending

These items occur regularly and the amount cannot be varied by you e.g. rent, loan repayments, school fees, insurance, rates, car registrations, telephone rental

** Essential Variable Spending

It would be hard to do without these, but you can vary how much you spend by changing the pattern of your lifestyle e.g. petrol consumption, telephone calls, shopping habits, power usage

** Discretionary Spending

These are things that you like to have but could cut down or even cut out if things get very tough e.g. clothes, cigarettes, outings, holidays, magazines and gifts.

The following worksheet is an example of this:

ANNUAL SPENDING WORKSHEET

The Cash Surplus or Deficit

Subtract the total of your Annual Spending Worksheet from the total of your Annual Income Worksheet. The difference is a surplus (income higher than expenses) or deficit (income lower than expenses.

WHERE TO MAKE CHANGES

Essential Fixed Spending

These items cannot be reduced without major adjustments to your way of life. You could reduce mortgage payments or rent by moving and eliminate telephone rent by having the phone cut. But, generally, these items don’t change much.

These are the areas where large savings can be made. Without a budget everybody tends to overspend in the variable areas. Then there is nothing left over for the fixed expenses and nothing at all for savings. The correct way is to take fixed expenses out of your income first and then variable expenses last of all. If you don’t, you will continue living beyond your means and continue experiencing the pain which that brings.

WAYS OF CUTTING SPENDING

Telephone Calls

** Put a money box next to the phone and ensure that every time a toll call is made a $2 coin goes into the box.

Food

** The top selling items in supermarkets are soft drinks, bread and cakes, lollies and chocolate, pet food and cigarettes. Most of these items could be eliminated or severely cut down, and both our health and bank balance would be much better off. Most families could save $20 per week in this area.

** Most shopping overspending is caused by a simple lack of planning. Those last minute rushes to the corner store where things cost much more could be avoided by planning the week’s meals in advance and shopping to suit. By doing this you can take advantage of the specials and if you have some savings available you can buy in bulk.

** What about growing your own fruit and vegetables rather than growing them?

Hire Purchase Purchases

** Do you really need to purchase that item? Hire Purchase items attract a high interest rate and you will pay back a lot more than the original purchase plus the monthly repayments will make it more difficult for yourself to meet other cost commitments. Can you wait until you have the money available and pay for the item in cash?

Child Minding

** Can be costly. Look at sharing with your neighbours, and/ or pooling so that they can look after your children one day and you look after theirs the next.

Clothes

** After the motor car clothes are probably one of the biggest areas of waste for the average person. Many people make their own clothes and many more are happy to buy "as new" second hand clothes from shops that sell them. Big savings can be made by doing this.

Buying Second Hand

** Huge savings can be made by buying near new articles through newspaper advertisements.

Petrol

** Sharing with others the travel to work or other places will reduce costs.

Cigarettes

** If you can’t give up smoking cut it back.

Entertainment

** Reduce the alcohol intake.

** Go into the country or the Botanical Gardens etc for a picnic, instead of dining out.

** Open a special purpose account at your bank and put a fixed amount away every week. Everybody overspends at Christmas but if you put something away every week it will be there when you need it. This will avoid you getting into debt at Christmas.

Hobbies

** Perhaps your hobbies can work for you. Maybe you can make things and sell them. There is a great chance to make extra income.

Putting your life on a footing where you are in control, making intelligent choices, and being free of all aches in the pocket when the bills mount up takes discipline and you will probably have to make tough decisions in some spending areas. This may not be pleasant, but if you don’t do it you will be facing far more unpleasant medicine when the weight of mounting debt starts to grow on you.

PAYING OFF PERSONAL DEBT

Start by listing all your long term debts

The total repayments are $2201 a month but only the interest on the investment loan is tax deductible. This means that it is the cheapest real rate of cost to you.

In this situation you should pay extra payments to and endeavour to pay off the loans in this order:

** Credit Card

** Personal Loan for Car

** Housing Loan

** Loan on Investment House

The compound interest concept illustrates what amounts put aside can grow to when interest is added, then further interest is added to the amount plus accrued interest.

If you were to make savings of $100 a month and put it aside in an investment the amount would grow to: