Making Your Money Work
1. How are you going now?
Taking stock of your financial situation is the first step in managing your money. Ask yourself two important questions:
- Are you better off today than a year ago? Look at what you own and what you owe.
- Are you saving any money? Look at your income and your expenses.
Are you better off today than a year ago?
Write down what you own and what you owe today and a year ago in a table, like the one in our example opposite for Nat and Sam. It's fairly easy to make a few estimates, and then use your mortgage, credit cards, bank accounts and superannuation statements to fill in the blanks.
A year ago, Nat and Sam bought a home and a new car. Now, their home is worth more, their super has grown and their car loan is coming down. Unfortunately their credit card debt has gone up, and they don't have much saved for unexpected bills or time without work.
If Nat and Sam were 25 years old, they'd be pretty comfortable, because they have plenty of time to pay off their mortgage and build up their super. If they were 55 years old, they'd be facing some serious problems with so much debt and so little super, even if they kept working till 65. When you draw up a similar table for yourself, first look at what changes have occurred. Then think about your age and how much longer you expect to work to see if you are likely to be comfortable or if you face some serious issues.
| Value today | Value a year ago | Change | |
|---|---|---|---|
| What they own | |||
| Home | 342,000 | 320,000 | Up |
| Car | 10,000 | 15,000 | Down |
| Superannuation | 55,000 | 45,000 | Up |
| Total owned | 407,000 | 380,000 | +27,000 up 7% |
| What they owe | Debt today | Debt a year ago | Change |
| Mortgage | 246,440 | 250,00 | Down |
| Car loan | 10,345 | 15,000 | Down |
| Credit cards | 3,000 | 1,800 | Up |
| Total owned | 259,785 | 266,800 | -7,015 down 3% |
| Nat and Sam's net worth | 147,215 | 113,200 | +34,015 up 30% |
Are you saving any money?
Record all your income and expenses for a month, as we have for Nat and Sam in the table opposite.
List each loan repayment as a separate expense, then convert everything into monthly figures.
Nat and Sam, who both work and have two children, are doing well to save $230 each month. However, their debts take up a lot of their money, and $230 won't stretch far. There's also not much room for them to put extra money towards paying off loans or building up money for their children's education.
Looking at your own income and expenses is a first step in budgeting, and shows if you're making progress, standing still, or going backwards.
| Income and expenses | Converted to monthly amounts | |
|---|---|---|
| INOCME | ||
| Sam's take home pay | $1,572 fortnightly | $3,417 |
| Nat's take home pay, works part time | $960 fortnightly | $2,087 |
| Family Tax Benefit | $2,352 yearly | $196 |
| Total income | $5,700 | |
| EXPENCES | ||
| Home mortgage repayments | $1,843 monthly | $1843 |
| Car loan repayments | $463 monthly | $463 |
| Credit loan repayments | $492 yearly | $41 |
| Car running costs | $4,356 yearly | $363 |
| Food and groceries | $250 weekly | $1,083 |
| Holidays, entertainment | $100 weekly | $433 |
| All other costs (school, clothing, medical, insurance, repairs, rates, water, electricity) | $1,244 monthly | $1,244 |
| Total expenses | $5,470 | |
| What Nat and Sam save each month | +$230 | |
- 1. How are you going now?
- 2. Planning your finances
- 3. Budgeting and dealing with unexpected events
- 4. Managing your loans and your mortgage
- 5. Protecting yourself, your family and your property
- 6. Getting the most from your super
- 7. Retiring: How much money will you need?
- 8. Starting Your Personal Investing
- 9. Find Out More
- This topic presented in multimedia format