My money plan.

Welcome to today’s Ruby Connection and Davidson Institute financial confidence webinar on ‘My money plan’. When you mention the word ‘budgeting’, the first things that many people tend to think of are restrictions, or ‘cutting back’ or having to go without the good things in life. The reality, however, is quite different. A personal budget is a simple tool that can be very empowering.

By taking the time to work out your personal financial position and PLANNING for how you want to spend your money, you are much better placed to make confident decisions about your money. Confident decisions that, over time, will help you to effectively plan for the future and get the GOOD things you want out of life. Now before we get into a financial plan for life let me just share a few stats with you that reinforce my thinking that it's absolutely essential for women to become more

financially savvy and independent.

Firstly, times are a-changing with millennial women now leading the way in home buying and investments – a far cry from the days (only 30 years ago) when women required a male guarantor to borrow money. And, these days women are our household CFO’s, managing 80-90% of household finances despite being less financially confident than men.

However, we still have a long way to go. Currently, the average annual salary for women is $44,000 which means that on average women need to work 59 days more than men to earn the same amount. And while the gap is closing, women are still retiring with 47% less super than men, and with a longer life expectancy, it needs to last them longer too.

So to my way of thinking it’s imperative, as we work toward ‘Each for Equal’ this International Women's Day, that we take a more proactive interest in our finances sooner rather than later. But given you’re all here today I think I am preaching to the converted. In this webinar, we are going to explore the concept of budgeting and money management to help achieve your goals.

We will take you through: • Understanding your financial position and using a budget to plan for what you want to achieve. • Developing good spending habits to support your budget. • Saving to get the things you want out of life. In practical terms, a budget is a statement that shows the money that is available to you, the amount that you plan to spend, and what’s leftover.

Many people aren’t excited by numbers but what they should get excited about is all the things that a budget can help them to achieve. The purpose of money is to support our way of life. We want to be able to use that money, not just to live but to share in some of the good things that life has to offer. Things like holidays, cars, jewellery, concerts, dinners … whatever floats your boat.

There are also some significant events that we want to enjoy to their fullest … like going to University, getting married, having children, buying a house, or even retirement. It is when we let these events ‘creep up’ on us, or we partake in too many good things in life, that we can run into trouble. This is why you should have a plan – because, at all stages of your life, planning can help you to make sure that you have enough money to help you achieve your dreams and goals.

. By having a plan you are better placed to make the most of what you’ve got.

So the first part of planning is to think about your dreams and goals. What is it you want to achieve out of life? That might be a gap year overseas before going to university, the capacity to help your kids buy their first car, owning your own home, or perhaps early retirement. Whatever it is, it’s not going to happen unless you want it and you make it happen.

This brings me to my next point - Taking responsibility. You are the only one who can make decisions about what you want out of life and you are the one who decides how you spend your money. Only you can be responsible for you and your financial position.

One of the best things you can do to help achieve your dreams and goals and have the financial future that you want is to develop good money habits. I always think that if you can make something a habit, it becomes much easier to do because you do it without even thinking about it. We’re going to have a look at some good spending and saving habits later in the webinar.

So, once you’ve thought through your dreams and goals and have an idea of what you want life to look like the next step is to look at what money you have available to you. The easiest way to understand this is through the concept of ‘cash flow’. Cash flow is a simple equation – Cash-In, less Cash-Out, equals a surplus or deficit – or, what’s leftover. Cash-in is simply “where I get my money from”.

There are a number of places that your money might come from. For many people, the first obvious one is you work for it. This could be either you work for someone or perhaps you run your own business. Another way to get cash in is to have your money work for you or to earn income from investments, such as interest on a deposit or savings account. It could also be dividends earned through the ownership of shares.

Some people in certain circumstances are eligible for what we call ‘safety payments’. For example, if you are a stay at home parent, or unable to find work, the government may provide a social security payment. Alternatively, you may have been injured and be unable to continue your work. If you have insurance to cover this eventuality, then you will have a stream of income from the insurance company.

‘Cash-in’ often only comes from one of these sources and is a very finite amount. Working out how much money we have, and where we get it from, is generally the easy bit. The next step is to work out how much money is going out.

There are lots of ways that we use money to support our life. We have quite a list of things here on the screen from housing, to transport, food and clothing, and so on. How much you spend on these things will determine whether you end up with a surplus (or money leftover) or a deficit (where you may have had to borrow some money from somewhere). Knowing how much money is coming and how much money is going out, you’ll be able to work out how much is left over.

The goal is to create a surplus and have money available to use.

One of the tools that we can use to understand what we spend our money on is a money diary. Record every single cent you spend for let’s say one month and this will then give you a very clear picture of where you are spending your money. You can then group these expenses into things like housing, transport, food, etc. and add up the amounts to see how much you spend each week /fortnight /month to start putting together your budget.

Any notebook will do but there is also a Money Diary that you can download from the Davidson Institute website. You can then add all those amounts into a budget planner like this one, also available on the Davidson Institute website. Start with your ‘Cash-in’ from your wages or wherever it comes from, noting whether that’s weekly, fortnightly or monthly.

Then record all of the ‘Cash-out’ amounts - take care to match up the timing, that is are you working on a weekly/fortnightly/monthly budget - starting with the money you want to save; then the money for your commitments to other people like loan repayments, phone plans and so on; then all the money you need to live; then the money you choose to spend to maintain a particular lifestyle. Add up all these amounts and subtract that from your money in and you’ll end up with a surplus or a deficit.

As we said earlier, we are aiming for a surplus and if you end up with a deficit, then you should be looking to do one of two things: either increase your income (not always easy) or reduce your spending. Remember, the great thing about this is that it is a plan - a picture if you like - and if you don’t like the picture you’re painting, you have the opportunity to change it.

By taking the time to look at your spending and develop your budget, you can make the decision as to whether this is how you want to spend your money or whether there is a better way that will help you to achieve your financial goals. As I said earlier, often when we think of budgeting, we think of reducing our spending or ‘cutting back’. In reality, though, there is a certain amount we need to spend all the time simply to live.

Then there are the things that we want, as opposed to the things that we need such as that nice piece of jewellery, a fancy dinner, or the latest tech gadget. When we think of budgeting, we quite often think of cutting back on the nice things that we want, but the reality is that buying a sandwich for lunch every day of the week could actually be the thing that is impacting your budget.

One of the biggest spending problems that can impact our ability to stick to a budget is spending leaks. Think of your budget like a boat - we know that one big hole in the middle of the boat will sink it! That one big hole in your budget might be major car repairs, unexpected dental work, or even an unplanned trip away. Any of these things have the potential to sink our budget ‘boat’.

But, what if we have a few tiny holes? Over time even those tiny holes will leak enough to cause us significant issues. We call these little holes - spending ‘leaks’. When you think of ‘leaks’ in terms of your budget, think of the little things that you buy regularly that might only cost a few dollars here or there.

It could be as simple as buying your lunch. Let’s say that you buy a sandwich and a drink for lunch. That would probably cost around $15. For many people, $15 isn’t really that much and they probably wouldn’t even miss it from their wallet. But what if you did that every work-day? If you work 5 days a week, it would cost you $75 per week. Over the course of a full year, that $15 per day adds up to $3,750. Think about what you could do with $3,750.

And this is just one little leak! Your money diary can help you to identify your leaks just like the example we’re going to have a look at now. Meet “Leaky” Leanna. Leanna lives in the suburbs and catches the train into the city every day for work. She’s always running late but doesn’t miss buying a coffee to give her day a kick start. When she gets into the city, she buys a bottle of water to drink as she walks the rest of the way into work.

She never misses coffee with the gang at morning tea time and loves a good latte. Because she is always running late in the morning, she buys her lunch every day – which is normally a sandwich and a soft drink. She and her girlfriends love a good chick flick and their weekly trip to the movies costs her $30. What is this actually costing Leanna?

Individually, each of these things is relatively cheap. A few dollars for coffee, few dollars for lunch … but weekly, those little bits and pieces add up to $200. Then there’s the monthly subscriptions she pays for a couple of streaming services, and an online music service that she set up when she went overseas and has simply forgotten to cancel now that she doesn’t need it any longer.

When you add that into the mix … over a year, that adds up to over $10,000! Does this scenario sound a little familiar to you? Don’t worry, we all have little leaks, including me. Again, it’s not necessarily denying yourself these things. It’s about making a choice on whether you want to continue to spend your money in this way and building it into your budget, or whether you recognise that these leaks could be delaying you in achieving your goals and you decide to do something about it.

Let’s say Leanna decides its time to make a few changes and get better organised. By getting up a little earlier each morning she can catch an earlier train … one that doesn’t charge peak hour prices. She would also have time to make her lunch most days and have a coffee at home before she leaves. She does enjoy her coffee catch-ups and is happy to buy her lunch once a week, but now drinks tap water from her reusable bottle.

The lure of saving enough for another overseas trip sees Leanna cut back the movies to once a month, and she’s cancelled the subscription she was no longer using and decides to keep just 1 pay-TV subscription. Not huge changes for Leanna, but significant ones for her budget! Instead of her leaks costing more than $10000 a year, these little regular spends are now only costing her just shy of $4000 a year.

That’s a saving of $6,750!! And what could Leanna do with an extra $6,750? Well – forget Leanna -- what could you do with an extra $6,750 each year? Leanna’s example is a simple one but a common one. Your daily expenses may look slightly different, but consider this – do you really know how much it is costing you? And more importantly, would you continue with that cost knowing that it could mean the difference between achieving your goals or not?

So, fixing our spending leaks is one way of getting our finances into better shape. Here are a few more good spending habits: Don’t spend more than you earn! Sounds obvious, doesn’t it? However, it’s a very easy trap to fall into using things like credit cards. How do we avoid it? By planning well, being aware of cash flow, and developing good spending habits.

Another good habit is recognising Wants vs Needs: Much of our spending isn’t necessary. Think of the list of all the different things that you want right now. Now think about some of the things you put on that list and ask yourself, “Do I really need it?” Now, I’m not saying don’t buy the things you want, but do make an informed choice. Ask yourself “If I buy this thing that I want now, what else might I be missing out on?”

Defer spending: We often buy on impulse but if we can defer the purchase for a few days or even a few hours the urge often goes away. Some people do things like leaving their credit card at home so they can only spend the cash they have on them, or make the decision over a cup of coffee instead of on the spot.

Avoid emotional spending! A lot of impulse buying is emotional spending. This is simply where you let any emotion override your careful plans. If you are tempted to make an emotional purchase ask yourself “Is it really going to make me feel better in the long run? How will it affect the goals I’m looking to achieve? “

Another good habit is to use your credit card wisely. Credit cards are a great tool but only if they are used well. Remember each purchase you make will potentially cost you more. Aim to ensure you use any interest-free period you have and clear the card in full each month. If you are going to use your card for larger purchases that you won’t pay off within the month, look for a card with a lower rate and be disciplined to pay it off as soon as possible.

The final tip here is to really look at the value of your money: This is when you have to understand the value of what it is that you are buying. Some of those “great deals” you see advertised - if you break them down - sometimes don’t stack up at all. Do your research and make sure you are getting value for your money.

Ultimately, the purpose of developing good spending habits is to put yourself in a position where you can save for the future. Remember back to the start of this session – we talked about planning. Planning for a holiday, a wedding, a baby or even retirement. Saving is about our future spending rather than our ‘now’ spending. Like spending, there are some good habits we can develop that will help us to save more effectively.

A good habit to get into is to allocate savings as part of your budget before you allocate spending money! Think about it as paying yourself first, or putting your future first. So, how much should you pay yourself? A guide is about 10% of your total income. I know that this isn’t always possible but even if you start small, start now! Even small amounts add up for you over time. If you get into the habit of doing it, then it becomes less noticeable to the point where you don’t even miss it.

And I’d encourage you here to not make your savings goals too difficult. If you say you want to save $100 a week, but then find that you have to continually dip into your savings for everyday spending, you will only become disheartened. Start with a challenging but manageable goal and if you find you have money left over, then add that to your savings as well. Build up to higher savings targets over time.

Finally – keep your savings separate to your spending money. If it’s tucked away, out of reach, potentially earning more money, you’ll see your savings grow over time … giving you options and choices in the future. Like your good spending habits, good saving habits will help you to achieve those dreams and goals. And like your goals, when it comes to savings, there are 3 levels – or tiers – that you should consider.

Firstly – there are short term savings, that help with things like medical expenses or car repairs. You will want to be able to get to your savings quickly so keep this type of money in an accessible savings account. Secondly - there are medium-term savings. These savings are for 3-5 year goals such as saving for an overseas holiday, a car, or even a house deposit.

You generally won’t need quick access to this, so you can afford to lock the money away, say in a term deposit, potentially earning you more interest.

Finally - there are long term savings, such as saving for retirement. These savings will often be in the form of investments - things such as superannuation, shares, or purchasing investment properties. Accessing this money is generally more difficult. However, that is okay because you generally won’t need to access it quickly. By allocating your savings to short, medium, or long term goals you’ll effectively be covering all bases for the future.

So, throughout the webinar we have looked at budgeting as a tool we can use to help achieve our dreams and goals. By planning our financial future, we put ourselves in a much better position to have the things we want in life. Developing a budget is about understanding what money comes in, and making choices about what goes out and where to. Developing good spending and saving habits supports the budget we have set helping make our goals all the more achievable.

Let me thank you for joining us today for ‘My money plan’. We trust you found this information useful and relevant and I encourage you to check out the other webinars and resources on the Ruby Connection and Davidson Institute website to help build your financial confidence. Thanks again and I wish you every success with your money plan and I hope to see you again at another webinar soon.