Money Matters

Mid-Year Budget Review

Last week it was time for a mid-year budget review of our household income and expenses. The Federal Government calls it their Mid Year Economic and Fiscal Outlook (MYEFO). I am calling this My EFO (My economic and fiscal outlook). My budget strategy for the rest of the year is simple “do more with less”. The Australian government is intent on repairing the budget. Therefore this is something that every household should do if the household budget is in need of repair.  Just as the government is working towards “sustaining strong growth in living standards” we can all do this if we manage our budget.

Following the 2008 Global Financial Crisis (GFC) countries including Australia implemented the Keynesian Theory of economics. The theory is named after John Maynard Keynes who developed his theory in the 1930’s.  Basically his theory is spending and tax cuts to encourage economic growth. After the GFC the government spend billions on stimulus packages (e.g. Feb 2009, $42 billion). The measure did keep tens of thousands of people in a job however who is undertaking the cost/benefit analysis? Further is this the right methodology to divert a recession?

The fact is that government spending has increased Australia’s net debt projection for 2014-15 to $226.9 billion and the interest bill forecast is $14.7 billion. Knowing that Australia is paying more than $1 billion in interest to pay off the debt, it is just too much for my mind – it can’t compute! When it comes to public and private debt then things are really getting out of hand. Take a look here!  

If you give a person a fish you feed them for a day; if you teach them how to fish and you feed them for a lifetime

It is very clear to me that when it comes to the household budget we cannot spend our way out of a shortfall. If we do we would likely end up bankrupt. Therefore, it is up to me to utilise a number of tools to manage our household budget. If you are reading this then you have access to the internet. There is a plethora of information on budget management. If you don’t have a budget to manage your money then get one quickly. You can start here.

If you are not budgeting your money will disappear and you will have no idea where it goes. Richard Armour said “that money talks, I won’t deny. I heard it once, it said Goodbye”. Don’t keep saying goodbye to your money. One of my saying is “money matters and it matters more when you don’t have enough”. Therefore, there are a couple of essential “must do’s” for reviewing the household budget mid-year.

#1           Income/Expenses: By having a budget and tracking our income and expenses I get a good picture of our financial outlook.  At the mid-year mark it is easy to review what areas are on target and what areas are over expended in each category e.g. groceries, entertainment, petrol, medical. This enables us to make adjustments with the aim to come in on budget at the end of June 2015.

#2           Buffer account: There will be emergencies in every household so planning for these takes the stress out of the situation.  After a couple of years of budgeting you gain a sense of how much is needed in the buffer account. Fortunately for us we had the buffer account and this saw as through some unexpected expenses for the first half of this financial year. Setting up the Chicken’s Palace (aka Chicken Coop) was an unplanned expenditure, but all worth it for those royal “golden” eggs.

Again, the cost came out of the buffer account. Our buffer account makes me feel so much better and gives us flexibility in life as well as a little interest. So don’t be a duffer, have a buffer!

#3           Delay gratification: A rule that can’t be broken is NO impulse buying, particularly costly items. We have a list, lots of lists at our place and so we write down what we want and wait. Waiting tells us if it is more of a want than a need! The key here is we give ourselves time to determine whether it is the best way to spend our money.  I want a new lens for my camera. I have delayed my gratification for a month now, not bought, but still on my shopping list! Can’t be long now!

Back to My EFO and how did we go? Overall not too bad, all thanks to the buffer account. The My EFO is an essential mid-year financial health check. It is a very necessary and valuable exercise just like looking after our health and taking preventative measures. The information I discovered in the mid-year review informs our behaviour and budget management for the second half of the financial year. Money matters and managing our money tells us where each dollar is going. It also helps us make informed decisions and gives me and my “one and only” peace of mind. After all that effort perhaps we should now go fishing.

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