Author Katrina Shanks, CEO Financial Advice NZ Article originally published in Stuff.co.nz.
OPINION: With the cost of living the way it is, and predictions it will get worse before it gets better, most people’s budget are right now coming under big pressure.
The price of food is one, vital, example
This week we were told prices had jumped 1.5% in the month of February, and 12% on February last year – the biggest increase since 1989.
Take a look at some of the main culprits: eggs up 47%, fruit and veges 23% (tomatoes up 117%, potatoes 48%), meat and poultry 9.8%, and non-alcoholic beverages 9.1%.
Being some of the main staples of a healthy diet, they are big hits and hard to escape.
So, what else can you do apart from reducing what and how you eat?
If there’s no pay rise on the horizon, then the best way to help get you through more comfortably is to prioritise your spending.
And you do that by budgeting, knowing what you’re spending, and where.
There are many ways you can do this, depending on your knowledge of money and what best suits your financial personality.
Being some of the main staples of a healthy diet, they are big hits and hard to escape.
So, what else can you do apart from reducing what and how you eat?
If there’s no pay rise on the horizon, then the best way to help get you through more comfortably is to prioritise your spending.
And you do that by budgeting, knowing what you’re spending, and where.
There are many ways you can do this, depending on your knowledge of money and what best suits your financial personality.
I prefer to stick with one my parents, and their parents before them used – I call it the bucket system.
In my grandparents’ day these buckets were actually tins in the cupboard with a label on them, into which they put money on payday for regular living expenses: groceries, power, petrol, rent/ mortgage etc. (Note that savings and your KiwiSaver and retirement plans have already been taken out of the money).
And there was one for any money that was left over after those tins received the amount of money needed for each. That was for discretionary spending – maybe going to the movies or eating out.
These days my buckets are online bank accounts, but it works in exactly the same way.
Every payday I put set amounts into separate accounts, and that’s how I spend my money.
For those who are more technology-mind than I am and like the idea of gaming-type apps, there are a variety of apps and websites.
Lots of banks offer them, but there are others that synchronise with your bank account so you can see what’s going on.
I’ve picked three at random, and if that’s the type of thing you like, you may want to take a closer look.
Mybudgetpal: This is a website tool that gives you a complete view of your finances. It tracks your spending so you can compare it over different periods and can sort out areas or habits that may need attention. It enables you to set spending limits on yourself so you can see where your money goes and hopefully help you change your behaviour. It syncs with your bank accounts every day and automatically sorts your transactions into expense categories. This means you can have a single view on where you’re spending your money. You can also schedule payment due dates. And it’s free.
PocketSmith: This is an app that allows you to track in one place all your income, irrespective of how many jobs you have and what size they are. It also allows you to forecast your cash flow and budget to help achieve your goals. It syncs automatically with your bank accounts, and has a safe-to-spend feature so you always know when you are about to go over your budget. It’s free if you manually input your transactions and want to project your cash flow for six months ahead, but if you want auto synch and forecast your cash flow for longer, it starts from $9.95/month.
Spendee: This is an app that allows you to create budgets for each category of spending, and tells you if you’re nearing your limit. It uses infographics, tells you at a glance how you’re doing. It automatically synchs with your bank accounts or you can add manual transactions as you go. This allows for more accurate record-keeping, especially if you use cash a lot. It’s based in the US and costs US$22.99 per year (around NZ$37.50).
Another way to track your money is known as value-based spending.
It’s like a loose sort of budget but it targets your spending to things you value.
Rather than focusing on what you can’t spend, it sets aside money for things that are important to you.
Once you’ve put away your budget for food, power, rent, petrol etc, you choose some things you really value and spend your discretionary money on them.
For example, say you love cars or travel or clothes (or handbags, in my case), then that’s what you spend your leftover money on – or save for.
As long as your spending is aligned with what you’re earning, you’ll be fine.
It doesn’t matter what it is, you’re spending your discretionary money on what you really value.
It’s about tailoring your discretionary spend to what gives you the most fun or joy in life.
It could be a way of giving you peace of mind around your spending and allowing you to achieve goals you might not have otherwise reached.
As my financial adviser would say – whichever method you choose, knowing where your money is going and being able to identify easily where you can make changes gives you power to change your life for the better.
