Tuesday, February 16, 2016

Keeping up with the Jones'

Spend within your means.  This is the second lesson of the 'Richest Man in Babylon' series.  It is something that the most lauded investor of our time (Warren Buffett) follows, and yet seems to be the most difficult for the general population to maintain.  One of my favourite Buffett quotes is "Do not save what is left after spending, but spend what is left after saving". 

Living within your means is not about making sacrifices, but investing in your future.  If you have started with Lesson 1, and are paying yourself 10% of your income, then you have 90% of your income to spend, so you are automatically living within your means.  It seems so simple, but the thing that a lot of people don't realise is that the road to financial security is relatively easy.  All that needs to happen is that you manage your expectations.

Let's look at a practical example; if you are earning $70,000 per year, this is what your savings/expenditure should look like:

$70,000 less tax $15,697 = Net income of $54,303 less savings $5,430 = Amount available to spend $48,873 per year, or $939 per week.

How you spend your $939 per week is a lifestyle choice.  There are a couple of things to keep in mind when developing your budget.  The first is to be realistic.  You cannot live a champagne lifestyle on this budget.  Managing your expectations is key here.  Set a budget, and then review it in three months’ time to see how you are tracking.  If you need assistance in setting a budget, then there are people such as myself.  For help tracking it, there are plenty of Apps and software to be downloaded.  But, at the end of the day, only you can make the decision as to what your life looks like, because you are the one who needs to live it.

Contrary to what Instagram tells you, you cannot have it all.  So please don't be tempted by credit.  As a Financial Planner, there is nothing worse than seeing a client whose cash flow is being eaten up by interest repayments.  These people are the Jones'.  You do not want to try and keep up with them, because, I can guarantee you, they stay awake at night trying to work out how they are going to pay for their children's school shoes without missing a mortgage payment.
By Erin Wright B.Int Bus Dip. FS(FP), Accredited Aged Care Specialist
Find Erin at Achieveit Financial Planning or call for an appointment on 07 4638 5011


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