Budgeting to help recover from a financial setback
There are any number of reasons that you might be faced with a financial setback. Job loss, natural disasters, extended illness, or even changes to the family situation. Any of these life moments, and many others, mean you may be faced with a greatly changed financial landscape. At this point, it will be important to take stock of what has changed and how you may need to change your financial habits in response.
3 minute read
What’s in this article:
- Taking stock of what has changed
- Creating a personalised budget
- Using your budget to find where you could cut back
This might include doing a full assessment of where you stand right now, reassessing where you want to land in the future, then putting together a plan to help you get there.
A personal budget is often a helpful planning tool. Budgeting:
- helps you to understand how much money you have available to use now and into the future,
- shows all the different ways you use money,
- reveals where you are spending most, and
- identifies whether you may be overspending or whether you may have money left over.
To put together a comprehensive budget for yourself, a good starting point is to identify all the things you currently spend your money on. You might choose to write down everything you spend for a month or perhaps build a list from last month’s bank statement and receipts. Remember to include any loan repayments or those things that you may only pay for once a year, like car registration or insurances.
Then, compare the amounts you have going out with how much money you have coming in. Any major change in your life may mean changes to your income, which is why it’s a great time to think about what else you may need to adjust. If you identify that you need to reduce some of your expenses, then start by prioritising them. Break them down into commitments to others (such as loan repayments, or phone plans), necessary living expenses (such as food, housing, transport, health) and nice-to-have lifestyle expenses (like entertainment, personal services, recreation).
Sadly the nice-to-have lifestyle expenses are often the first to be cut, but take a closer look as there may be other things you can reduce that will allow you to continue to enjoy some of the good things in life.
Let’s start with your commitments. List them out showing the amount you owe, how much the repayments are, and what the interest rate is. Consider whether you can reduce those with the highest interest rates, or prioritise them to be repaid first. Check whether you are making the minimum repayments. While it helps in the long run to be making extra repayments, repay what you must, increasing them again as things pick up. You may also want to think about consolidating credit card debt, potentially via a balance transfer with low or no interest that you can repay within the balance transfer promotional period. Be mindful, a higher interest rate will apply to purchases and cash advances and the cash advance rate will apply to any unpaid balance transfer amount remaining at the end of the promotional period.
Then take a look at your living expenses, considering where you can reduce things there. Being more mindful of how you use utilities such as internet, electricity and water may help to trim those costs. Food costs may be able to be pared back by having a menu plan that you specifically shop for; by planning your meals around supermarket specials and seasonal fruit and veg; or by making more home-cooked meals rather than buying ready-to-eat or takeaway. Check out our handy for more ways to help save money on regular expenses.
Your post-disaster budget may look very different to your pre-disaster spending habits, but by taking the time to examine your current position, looking ahead to what the future holds, and planning how to make the best use of your money, you put yourself in a better position to ride out difficult times and make your way to a stronger financial future.
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This information is general in nature and has been prepared without taking your objectives, needs and overall financial situation into account. For this reason, you should consider the appropriateness for the information to your own circumstances and, if necessary, seek appropriate professional advice.
© Bank of Melbourne - A Division of Westpac Banking Corporation ABN 33 007 457 141 AFSL and Australian credit licence 233714.