Parenting Australia - Family Budgeting
By James Randle
Setting a family budget is a relatively tedious process but once you commit to it, it can be life changing. Every conceivable expense needs to be calculated as you work through the process. Start by logging all your expenses for a month. You may get a shock to see where your money actually goes. Beyond the month-to month expenses, it is imperative that costs relating to your children’s education, renovations, savings, car repairs and loss of employment be identified. A prorated amount needs to be set aside each month for these irregular but often significant expenses. When setting your family budget, putting aside funds for your child’s education is particularly important. Education expenses can be enormous and often cost in the hundreds of thousands of dollars for a full private school education and university degree. There are numerous tax-effective products, such as some imputation bonds, which both grandparents and parents can contribute to, and are designed to facilitate accumulation of “tax paid” lump sums. They are “set-and-forget” whilst in their accumulation phase, and after 10 years, there are no personal taxation or capital gains tax (CGT) implications, nor any tax reporting obligations. Once all your expenses are listed, identify those areas where you could cut back (e.g. entertainment and holiday expenses) and draw up a monthly budget that includes all expenses, debt repayments and prorated one-offs. Average out those bills that come on a quarterly basis. You’ll now have a very clear plan to help you manage your monthly, weekly and even daily spending and cashflow. The key is to stick to this plan! To help manage your cashflow you might consider setting up separate bank accounts - one for all expenses and the other for savings. Choose a savings account that attracts a higher rate of interest and link this to your expenses account so that savings can be set aside automatically each time you get paid. You could set up the savings account in the name of your partner if he or she is not working to reduce taxable income. If you have a mortgage with an interest offset account facility, you might use this as an alternative savings option. Savings can be directed into this account to offset daily against your loan amount. The purpose of the savings account is to ensure you have sufficient funds for emergencies and unexpected expenses that might pop up. It’s very important to build up a security blanket of money, so try to transfer 10% of your total monthly income to your new high interest savings account. Another effective method of budgeting for savings is to take any money that you receive during the year from income tax refunds, asset sales (do you need that second car?) and/or year-end employment bonuses and place it in the savings account. If you take these amounts and immediately transfer them into the account dedicated for savings and emergencies, you won’t have time to consider what else you could purchase. Transfer of these amounts should really push the balances along. If your finances are very tight and putting aside savings is very difficult, it might be an idea to examine how your overall finances are structured. Here are a few ideas that you might consider looking at: - Sell some of the “toys” or your second car. - Shop for bargains. Plan meals before shopping and make a shopping list. Stick to the list and don’t buy on impulse. Buy home-brand products. - If you’re in over your head with regard to credit card debts, try consolidating to a personal loan to reduce interest payments. An alternative is to consolidate your credit card debts to a new card with an interest free period and use the funds that you save on interest over this period to repay the outstanding balance. If you’re unable to consolidate, shift your credit card debts from the highest to the lowest interest option. - If you have a mortgage or investment debt, think about locking into a fixed rate loan now while interest rates are historically low to ensure repayments don’t rise when interest rates do. Something else to consider if you have a mortgage is moving to interest only repayments. This will free up cashflow for repayment of those debts that are attracting a higher rate of interest. However, beware of any fees or charges you may incur for switching. Interest only loans carry higher risks as you are not building equity in the property. - Contact Family Assistance to find out whether you qualify for family support payments, rent assistance or the one-off Back to School Bonus. www.familiyassist.gov.au - Ask your tax agent or accountant about recently announced initiatives in the Federal Budget designed to help families. One such initiative is the Education Tax Refund, which allows parents struggling with school expenses to claim a 50% tax refund on some purchases up to a total value of $750 for students in primary schools, and $1500 for those in secondary schools. Eligible expenses for the Education Tax Refund include laptops, home computers, home internet, printers, education software, school text books and stationery. Parents will be able to claim 50% of these education expenses through their tax return at the end of the financial year. Reaching your financial goals can only be achieved by knowing where the money is going. Setting a family budget is very important but only a first step. Sticking with it is the challenge. If you think you need a little coaching and support, please don’t hesitate to get in touch. James Randle | Financial Adviser Add Comment |
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In today’s uncertain world, a family budget is essential to ensure there are sufficient funds to cover household expenses, while also preparing for the unexpected. A family budget can restore some semblance of financial control.
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