The cost of coffee made headlines a few weeks ago when it was reported prices could reach up to $7 a cup.
Although counter reports came out sceptical of such a price hike, it’s undeniable that Australians are experiencing a creeping rise in expenses across the board. From petrol to groceries to travel, things are feeling more expensive because, well, they are.
So, it’s understandable that the rising cost of living is on the minds of many investors.
In times like these, creating a budget could prove to be an invaluable source of comfort. Not only can it help keep you on track to achieve your long-term goals, but it can also help reduce any feelings of financial anxiety that comes with spending above your means.
A good place to start is setting up a budget that corresponds with your pay cycle. If you get paid fortnightly, then a fortnightly budget will be easiest to manage. From there, you can figure out how much money comes in every fortnight (salary and other income), how much goes out (fixed expenses such as rent and bills and debt expenses such as loan repayments), and ultimately how much of what’s left you can spend, save or invest.
While that’s the crux of a budget, you can also consider these factors to help you find the right balance between spending and saving:
1. Do I have an emergency fund that can cover at least 3 months of living expenses?
An emergency fund is money set aside to cover the financial surprises life throws your way. These unexpected events (such as job loss, medical emergencies, car troubles, unexpected home repairs) can be stressful and costly.
Having an emergency fund can keep your stress levels down and give you confidence that you can deal with any unexpected events. It also keeps you from making poor financial decisions in times of stress, such as borrowing funds at high interest rates or racking up extra fees and penalties for late payments.
2. Am I setting money aside to put towards my larger goals (like houses, cars, education)?
It’s hard to think about saving more when you have other financial priorities competing for your attention. But remember that every bit of money you add to an investing account can go further than you think – your invested assets can benefit from compounding over time.
Factoring into your budget a manageable amount of money to invest each fortnight or month will set you up to reap the many benefits of regular investing.
3. Am I auto-paying for subscriptions that I don’t use?
You might have money disappearing out of your accounts every month for an online game you never play, a magazine you don’t read, or a box-of-the-month club whose boxes are sitting untouched somewhere in your house. Doing some subscription housekeeping can free up more of your money to put toward other goals.
4. Do I spend money out of FOMO – fear of missing out on the newest trend or gadget everyone is talking about?
Sometimes when we read about people camping out for days to get the newest phone or smart watch, it can create the illusion that we need to have it in our lives because it’s that cool and exclusive. Take the time to make sure you’re making big purchases for the right reasons, and not just to keep up with the Joneses.
5. Do my unplanned purchases fit into my budget?
It’s always a good idea to build room into your budget for some spontaneous spending every month. As long as you’re taking the time to thoughtfully weigh your recreational spending against your long-term goals, you’re looking out for your financial wellness – and that can make a world of difference!
Source: Vanguard April 2022
Reproduced with permission of Vanguard Investments Australia Ltd
Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.
© 2022 Vanguard Investments Australia Ltd. All rights reserved.
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.
Robert Sekulovski of The Wealth Quay is an Authorised Representative of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429. This editorial does not consider your personal circumstances and is of a general nature only – unless otherwise stated. You should not act on the information provided without first obtaining professional financial advice specific to your circumstances.