I earn good money, more than most of my friends (and family!) but as a consultant I work hard for it â€“ I get inside my clientsâ€™ businesses, I help them with whatever they may need, I offer my advice, my contacts, my services and of course my time. I work late and on weekends and as a result my partner and I recently decided to reward alour hard work with a new car.
I have always wanted an Alfa Romeo (probably because of my Italian background â€“ who knows) and so my partner and I headed to the prestige car dealership. It was a gloomy Saturday afternoon and as a result we were the only customers, and were able to head out straight away on a test drive of the new 147, in red of course.
The Alfa was fast, it was smooth it was beautiful and because AlfaÂ Romeo are not going to make the 147 anymore, we would have been able to lease a brand new one for just over $500 a month â€“ perfecto! Or so we thought. When my partner and I looked at our situation â€“ our earnings, minus our mortgage repayments, phone bills, power and water, $500 a month seemed like a drop in the ocean.
However, we soon realized we were in the situation that many of you are probably familiar with, of spending everything we earned and not being left with $5 at the end of the week, let alone $500 at the end of the month â€“ when was the last time you saw $500 left in your bank account at the end of the month? How could this be â€“ after our bills and mortgage repayments, a couple of transfers to our savings account (to pay for a trip to the home of the Alpha!) there was nowhere near enough left to cover repayments for a new car, month after month.
So with the end of the financial year approaching and the tax benefits (and the perks of a new set of European wheels in the driveway of our new home) slipping away we resolved to make our Alpha dream a reality. You see it is easy to spend everything you earn because you think you can â€“ all the money in your account is there to be used, so your natural inclination is to spend without thinking until it runs out.
That is where we realized our first hurdle. While we knew how much we earned, we knew what our bills were and how much our mortgage repayment would be, we didnâ€™t know where our money was actually going because we had a static budget. You canâ€™t expect to budget successfully by looking at your budget at the beginning of each month, or once every few months to see how much your bills are.
Instead you need to list all of your expenses for a month, as well as keep track of all of the incidentals. This means noting when you have a coffee on the way to work, when you go out to dinner with friends and including the cost of the meal as well as the cost of the fuel and the car parking. But you have to start with what you kngeow, so we went home and got out our list of bills where we had budgeted for $150 worth of groceries each week, a combined mobile bill of $100 (excellent capped plans!), our home phone and internet bill of $200, the $100 a week we were already contributing to a savings account and so on.
We then each took a notepad with us to record our incidental spending, but you can just collect the receipts as you go as well. Every couple of days we entered our spending into our new budget spreadsheet and before long we saw the spending add up. I had budgeted for $40 a month for a dinner with the girls (and a shared bottle of wine) but I was forgetting the $10 we spent on the traditional after-dinner coffee and ice cream. I also noticed I made sure to note the times of client meetings so I could raise an invoice, but I never noticed the $15 a week Iâ€™d spend at the drive through on the way home from the meeting when I was starving from a day on the road.
When my partner started adding up his morning coffee run he found heâ€™d spend $5 every morning â€“ plus the $5 coffee in the afternoon on a particularly long day. Then there was the run to the deli at lunch time for a $10 sandwich which quickly became $20 with the addition of a drink and a chocolate bar for the road.
We also found ourselves going consistently over budget at the supermarket too, spending an average of $200 a week, which added to the budget issue because we were spending so much on dinners out, deli lunches and junk food. So we decided to shop smarter, make our lunches, invest in travel mugs and buy healthy snacks at the supermarket which could see us through hunger cravings. I also decided I didnâ€™t need the extra sugar after dinner, and Iâ€™d probably sleep better without a late night coffee with the girls.
- $10 a month on an after dinner treat.
- $15 a week on the drive through = $60 a month.
- $10 a day on coffees = $200 a month.
- $20 a day on lunches = $400 a month.
- $50 a week on groceries = $200 a month.
So that was a saving of $870 a month we could make simply by being a little more organised with our meals. I still got to enjoy dinner with the girls and my partner still had his morning coffee â€“ he just made it at home before he left for work.
As the bills started coming in we saw where the next big portion of our wages was going. Our mobile phones were on capped contracts which should have cost us $100 a month combined. However, when we looked at why we were actually paying $200 a month we saw that my partner consistently went over his capped hours and into the talk time which was charged at a higher rate, my mobile was skyrocketing because I was addicted to the connectivity of my smart phone. So my partner starter monitoring his mobile spend and when he approached his capped limit, he would use my phone as I hardly ever used up all of my capped time. I also cut back on my Facebook mobile use and logged in only when I was in front of the computer.
Unfortunately our home phone package was more than it should have been and we found we were paying around $250 a month. When we looked at that bill the extra charges were made up of mobile calls weâ€™d made from the landline and so we resolved to use our mobiles (on which calls to other mobiles were included).
So we saved another $150 a month, bringing our savings up to more than $1,000 â€“ more than enough for a new car, plus fuel, registration and a little more for the holiday fund. However, as we continued to track our spending we saw our grocery bills stay steady at around $200 a week. While we went shopping with a list and didnâ€™t buy things we didnâ€™t need, we were spending more on snacks and lunch ingredients. However, the $200 more we spent on groceries was still less than the $600 we had been spending on getting lunch at work, so our monthly savings were still a healthy $820 a month.
As you probably also know, it can be hard to resist a shopping splurge and I saw myself entering $50 for a new scarf one week, $200 for a new pair of patent leather shoes, another $50 for a cute top and $500 for a gorgeous red laptop bag. If itâ€™s not scarves and shoes and bags itâ€™s going to be something else but this budgeting trial was all about saving without really having to try, so there is no need to cut out all retail therapy, just plan a little first. If Iâ€™d looked, I would have seen we already have three unused laptop bags in our office, and while theyâ€™re not red, they are going to do the job, in the same way the new top does the job of the three other tops I already had in the same color. However, if you know whatâ€™s in your wardrobe, you can more clearly see the gaps and make fewer purchases, but ones which are just as satisfying.
Learning to â€˜shop your wardrobeâ€™ gives you a chance to rediscover items you had forgotten you had, or which you now fit into again, and pin point the items which actually need to be replaced. So you can still budget for $100 or $200 a month for clothes and save $500 a month by buying only things you really need.
For those of you keeping score, yes weâ€™re now up to a saving of $1,200 a month and I donâ€™t miss the ice cream or the monthly influx of new shoes because I now have a gorgeous red accessory in my driveway permanently, as well as a more structured and realistic savings plan, not to mention a healthier diet.
Vanessa is a personal finance writer at Home Loan Finder, where she offers tips and advice on how to choose the best first home buyer home loans
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