No better time to protect your finances! Tips to set up a household budget during COVID-19 lockdown
Protecting your financial health in these uncertain COVID-19 times is more important than ever. And with Australians now spending a lot of time at home, it’s the ideal opportunity to set a budget.
Hibernation
Don't miss out on the headlines from Hibernation. Followed categories will be added to My News.
It’s just as crucial to protect your financial health in these uncertain COVID-19 times. And with Australians now spending more time than ever at home, it is the ideal opportunity to set a household budget.
While many of us have never got around to it because we think it is too hard, too boring or we are too busy, finance experts say the pandemic has created the prime time to finally do a spending health check.
And that means finding savings and reducing risk where you can — keeping in mind current household spending patterns may be different than usual. For example, public transport, petrol, road toll and restaurant meal costs are lower than normal because of stay-at-home directives.
MORE NEWS
Isabel Lucas dropped over anti-vax scandal
Sexy items shoppers are buying during lockdown
Influencers are losing work during virus downturn
But those now working from home can expect a spike in power, internet and grocery bills.
Kelly Partners Chartered Accountants CEO Brett Kelly says many people feel overwhelmed about managing money because they have not been educated about it. But he says you can start gaining better control of your finances in as little as two hours.
“Staying at home means we now have extra hours in the day, so don’t procrastinate any longer,” he says.
The first step is to convince yourself that your money matters, rather than blindly being a slave to spending. It’s like taking out the garbage or vacuuming the floor or mowing the lawn — looking at our finances should be added to our list of household chores.
“Decide who will be in charge of the budget and make it a family activity to be savers, not spenders.”
The key to a budget is calculating how much it actually costs your household to live each week. “The number one thing to improve your financial position is to be organised,” he says.
“Write down what your household earns after tax, then work out what your costs are. See how that adds up versus earnings and whether you are overspending. You can log in to bank accounts online or look at physical debit and credit card statements and bills and receipts for the past three months and list expenses from biggest to smallest.
“Then put those expenses in categories such as mortgage or rent, groceries, entertainment, eating out, healthcare, insurance, hairdresser and clothing. You can either write a list or create a spreadsheet.”
Mr Kelly advises beginning with a goal of setting aside 10 per cent of household after-tax earnings as savings, and then building on that as a habit. “Once you are aware of your cost of living, you can look at areas where you can reduce spending and save money.
“You can shop around to see if you can get a better deal such as a lower interest rate on a home loan or cheaper insurance or power bills, for example.”
Mr Kelly says the cost of living exercise will also pinpoint financial “vices” where spending on some non-essentials is far more than you realised and could be cut back.
He recommends having a single bank account for spending and restricting credit cards to one per household, with a credit limit that is no more than one month’s after-tax earnings. For recurring bills such as phone, electricity, water and insurance, investigate whether you can set up direct debits that fall the day after your pay cheque lands.
“Phoning the different companies does take effort but it is worth getting in touch to see if you can change some billing cycles,” Mr Kelly says.
A set amount should also be automatically transferred into a dedicated online, interest-earning savings account. Installing a smartphone app from your bank will allow you to review your spending and saving progress. And it should be checked regularly.
“Set up a meeting with yourself to look at the app on a certain day and time at least weekly, and pay attention to where you are able to improve. “I have this saying ‘watch the ball and don’t take your eye off it’. It’s all about awareness.
“Have a clear plan, look at your scorecard regularly, and identify what you want to change.”