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 months 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, while cash is short it may be easier to just 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 that initial honeymoon period. Be mindful, that some balance transfers may attract a transfer fee, higher fees for additional purchases and higher interest rates and fees after the grace 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 the Davidson Institute’s handy Cost-cutting checklist (PDF 216KB) 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.
Find more great budgeting tips on the Davidson Institute website, where you can also download a step-by-step ‘Budget planner’.