Yahoo Finance 5 ways to get your budget back under control during coronavirus
The COVID-19 induced recession means many millennials find themselves in uncharted waters. Here’s 5 easy steps to help get control of your finances.
Given that Australia avoided recession during the GFC of 2008/2009, Millennials have never seen a recession before. So, the COVID-19 experience is probably a big wake-up.
But millennials are generally much more indebted than other generations, too, thanks to hefty mortgages and big university bills that will take years to pay off.
It begs the question: how can 20 and 30-somethings gain the upper hand in controlling their finances?
Track your spending
This is an obvious one: you can’t do a budget without knowing where your money actually goes. But it’s easier said than done.
Try looking at your finances as you would a diet or eating plan – you want to see how much you’re consuming (eating) and what you’re burning off (exercise). Then you can identify where to cut the fat and by how much.
Pay particular attention to the following, which are a common means of ‘leaking’ money:
Your spending online: Yes it’s convenient, but we generally spend more than we intended to when we shop online. It’s just so easy to add an extra item or succumb to the ‘buy one get one half price’ offer!
Subscriptions/memberships: These can have a nasty sting on your finances. You’re not getting a bill that you need to actively pay: the money simply disappears from your account each month/quarter. Even if you’re no longer using that service.
Takeaways: Those coffees might only be a couple of dollars, but add that up five days a week, month after month, and that amount quickly balloons. It’s the same with buying lunches and getting Uber Eats meal deliveries after a long day.
Break that spending into 3 separate plans
Once you know where your money is going, categorise that into three separate spending plans: the “living the dream” or the “nice to have” plan, the “must have” (food, utilities, rent etc.) plan and the “have to have” absolute minimum (i.e. your minimum debt repayments and savings contributions).
Having these under separate plans will help you see what impact a cut in one place has on the others.
What goes into each column will depend on your life stage, whether you have kids, your personal values and, fundamentally, how honest you can be with yourself.
For example, I’m not motivated to save for expensive designer handbags, but travel (COVID restrictions aside!) makes me happier than anything else. So, it’s not a nice to have, it’s an essential that gives me meaning. As such, I leave money aside for that, which means making other cuts to accommodate this spending.
Use dollar figures, not percentages
I generally recommend avoiding percentages when doing your budget.
Percentages mean that you tend to generalise and group things together. For example, you may say 7 per cent of your weekly spend is on travel and categorise that as a must have. But if only 2 per cent is commuting to work (an essential) and the remainder is leisurely drives or social jaunts (a want), the portion of money you are allocating gets distorted.
Using dollar figures for each item makes it much clearer to see where your money is going. It’s about taking ownership for every dollar you spend.
Separate your accounts
Most banks now let you have ‘sub-accounts’ within your main bank account. This can be really valuable for dividing your account into pots: a bills pot, a savings pot, a ‘fun money’ pot. Each time you are paid, you can divide the money into each pot as determined by your budget.
Effectively, you’re separating what is ‘your money’ that you can spend or save as you like, and what is ‘someone else’s money’ (i.e. what is owed to the bank, the ATO, the supermarket etc.)
Choose transparency over convenience
Tap and Go, while convenient – particularly in the current days of social distancing – is really bad for visibility over your money. You don’t physically see the money leaving your account or wallet. You may not even see what the total purchase amount is. A quick wave of the hand and the money is gone!
Compare that to cash, where you take a nice, fat wad of notes out of the ATM and then watch those notes gradually disappear. You’re much more likely to put the brakes on your spending, to make those notes last longer, because you’re actually watching those dollars slip through your fingers!
Helen Baker is a licensed Australian financial adviser and author of two books: On Your Own Two Feet – Steady Steps to Women’s Financial Independence and On Your Own Two Feet Divorce – Your Survive and Thrive Financial Guide. Find out more here.
Note this is general advice only and you should seek advice specific to your circumstances.
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