So now I have my first step toward my goals (a house deposit), I need to work out where I’m starting from as I work to grow me some pineapples.
This whole exercise has four set categories and one broad one:
- investing (financially and in myself)
To start in a logical place, I need to review my current state of play in all the categories and roughly that would be:
- spending – too much
- assets – too few
- saving – not enough
- superannuation – not enough
- investments – none to speak of.
Let’s face it, if I didn’t spend too much and save too little there would be no need for this blog or my financial self-improvement goals. So, the last few weeks have led me to starting on Goal 3 (buying my own home) and I’m starting from zero. I need to say, it’s not actually zero because as of right now, I have six months in living expenses in one of the highest interest-paying bank accounts I could find (which isn’t very high at all, I also have to say). I also have a more accessible Mojo (that’s another Barefoot Investor thing) account that’s currently half of what I want it to be, after I had some unexpected expenses in the last fortnight.
Which gives me some new steps for Goal 3:
- rebuild Mojo to $3000
- review my spending to work out how to properly save, instead of just putting whatever is left at the end of the fortnight into my savings
- work out roughly how much borrowing power (and comfort) I have so I can then work out what a 10% (preferably 20% deposit might be).
Rebuilding the Mojo is going to take quite a few pays, reviewing my spending is, however, long overdue. I’ve actually got a budget document and I’ve been using it for a few years now. I was sick and tired of ignoring my fortnightly finances and working out at the start of each pay what I had to pay and how much I’d have left for groceries and fuel. So now I have a shiny spreadsheet that tells me that for a whole year. It also tells me how much I should be able to save for the whole year. This number is usually ephemeral.
In my budget, my goal is 23% of my salary (between savings and extra into The Super) but just at the moment, I am already behind on this. A) I’ve had those unexpected expenses, B) I said yes to an impulse overseas holiday (to a cheap and cheerful destination but still, that cost actual money) and C) according to Barefoot, I should actually be saving 30%.
Why 30%? Well, Barefoot has a system where you put a certain percentage toward long-term goals and another toward paying off your debts. I’ve paid off my debts so I should have even more to save but I haven’t been. I took that extra money and bought books, fancy groceries, concert tickets, rounds of drinks, weekends away and holidays.
All of this means I straight up should be trying for a 7% reduction in spending to boost my savings to 30% but truthfully, it’s going to have to be more if I want that house deposit.
Using 2017 as a base, here’s my spending (percentages rounded up or down to nearest whole number):
|Transport expenses (fuel/servicing/insurance/other)||6.5%|
|Medical (personal cover/expenses)||6%|
|Total “set” expenses||52.5%|
I should note there were other living expenses in the main budget last year that I don’t have since moving to the city that would have taken that total closer to the 60% the Barefoot Investor nominates for daily expenses. The percentages are also based on my total income (salary and other earnings). When I set my budget up at the start of the year, I only enter my salary. I don’t know if I will have the time or opportunity to pick up any additional freelance work so I just don’t count on it and routinely put most of it aside so it can earn some sort of interest until I get my tax done. Nothing worse than being caught short if there’s a tax bill!
I also put 5% toward my car loan in 2017, paying it off about six months early with a combination of a fortnightly overpayment of $50, plus extra payments whenever possible.
So how about savings? Well in 2017 that was 18%. That’s not awful but I know it could be better. I spent 10.5% on entertainment and lunches, 4.5% on gifts (mostly items my family needed). In looking at the figures, I am shocked to discover I only spent 0.5% on books! I spent more on items related to my day job.
There are definitely some areas where I can do better though. I aimed to spend only 4% on groceries in 2017 to start with. I overspent in 17 of the year’s 27 pay fortnights (it was a leap year). I definitely overspent on gifts and those entertainment expenses.
So, there’s a few starting points for cutting my spending in 2018, as I work toward saving 30% of my income (minimum).