This is the last column running highlights from Mary Holm's quarterly newsletter, Holm Truths. Mary's regular Q&A column will resume next Saturday.
KEY POINTS:
Budgeting is rather like eating healthily or exercising. Some people like to do it but, for others, it's a chore. And, for many, it's a source of guilt. They think they should do it but they don't.
This article could be yet another telling the laggards how they will be much better people if they keep track of all their spending. But that's hardly likely to make any more difference than other such articles.
As poet Robert Frost wrote: "Nobody was ever meant, to remember or invent, what he did with every cent."
Instead, therefore, some tips for the less than enthusiastic budgeter:
Do you need to budget anyway?
If your income covers your expenses - including a satisfactory rate of saving if you want to save - then arguably you are budgeting anyway, in an informal way.
Don't forget, though, to plan for expensive purchases such as a new car or a holiday. If you usually fund those out of savings, rather than borrowed money, over a lifetime you will save thousands of dollars in interest. (See sidebar.)
However, if you cannot save as much as you would like to, or if you have debt of any kind, you'll do yourself a big favour by budgeting at some level.
How much record-keeping is necessary?
If you're disciplined, you may want to firstly estimate how much you spend in various categories, perhaps using our "Your Budget" list.
Then either record in a notebook what you actually spend in each category over a few months or compile a list using bank statements, cheque butts and credit card bills.
The numbers don't need to be precise. If you don't have good data, guess, and round off numbers to the nearest $100.
Compare your actual spending with your estimates. Wherever the actual is higher might be a good place to reduce your spending.
Too onerous? Try for a second-best plan. Succeeding at that is better than failing at a best plan.
Under this option, simply ask yourself as you spend money over a few weeks: "Did I really need or want that - or as much as that?"
If you can identify some unnecessary spending and cut back on it, that might be all it takes to greatly improve your financial well-being.
Two points that might make this easier:
* Experts say that if you want to change a habit, do something different daily for just a month. So set a goal for 30 days, rather than forever.
* If you cut back on spending that also harms your health, such as smoking, drinking too much or eating too much unhealthy food, you are killing two birds with one stone. You're entitled to feel very virtuous about your saving.
Can every New Zealander cut their spending?
There's no doubt that some people struggle to get by on their income. But a decade or two ago, we all got by happily without many items widely regarded as necessities these days.
It's all a matter of expectations, which can be altered.
If you are spending just to keep up with your friends, stop to consider whether your friends really care if you have the latest whatever. If they do, how good is the friendship?
Budget advisers report that some people on very low incomes manage to save a little.
How can you save easily?
The most painless way for most people is to automatically transfer savings out of your bank account, on the day you are paid, into a savings account or other savings vehicle.
Start with a small amount. Then, whenever your income rises or expenses decrease, add perhaps half of the extra money to your regular savings.
If you get unexpected money, such as back pay, a bonus or even redundancy pay or an inheritance, by all means spend half of it but save the rest.
What are the secrets of goal setting?
* Make your goals specific, such as: paying off your credit card debt in six months or a year; saving $10,000 for travel or a house deposit; or repaying your mortgage five or 10 years earlier than expected.
* Break down big goals into smaller chunks.
* Involve others. Discuss your goals with a partner or friend to make sure they are realistic. Talking to others also makes you more inclined to stick to your goals.
* Write your goals down and mark your diary or calendar to check your progress regularly.
What if you fall by the wayside?
Don't be too hard on yourself. Include a few treats in your budget.
If you miss a goal one month, don't try to make up for it next month, unless that's easy. If you often miss a goal, perhaps you should modify it and build up later.
And be flexible. Circumstances change. You'll know if you are being realistic about changing a goal or if you are just finding excuses. If it's the latter, think about whom you are cheating.
What about emergency money?
It's good to have some money slightly out of reach, that you can call on in emergencies. Otherwise, you can end up paying high interest on a loan.
Some ideas of where to keep the emergency money:
* In a savings account.
* In a 60-day term deposit. You can put the emergency spending on a credit card and repay it when the term deposit matures.
* In a revolving credit mortgage account.
* In a conventional mortgage. Pay extra off the mortgage and arrange with the lender to borrow that money back whenever you need it.
An advantage of either of the last two: It's equivalent to your emergency money earning the mortgage interest rate tax-free - an excellent return on savings, with low risk.
* Mary Holm is a seminar presenter, author and publisher of Holm Truths newsletter. Subscribers to her website, www.maryholm.com, can read Holm Truths online. It is not available in other formats. Her advice is of a general nature and she is not responsible for any loss that any reader may suffer from following it. Sorry, but Mary cannot correspond directly with readers or give financial advice.
