Why Budget Is A Dirty Word

Sydney Morning Herald

Thursday May 31, 2007

Words Steve Dow

Many Australians find it difficult to save money - or even pay off their credit cards - but it can be done.

The year began with such financial promise. Leane Economou was turning 30 so in January the Sydney merchandising manager set up a separate direct-debit high interest account to discipline herself to save.

Her aim was to put aside $150 a week - about 20 per cent of her net income. Economou's savings plan was a tough enough ask but possible with a little belt-tightening.

Economou's friends who had reached 30 all have mortgages, so she hoped by year's end she might put down a deposit on an investment property to gain a greater measure of independence from her parents, with whom she still lives rent-free.

Last month, however, lifestyle reared its demanding head and, suddenly, Economou's weekly direct debit became endangered.

Forty per cent of adults who make a financial new-year resolution are likely to have lapsed by mid-year, according to a Newspoll survey of 1500 Australians conducted for BankWest in March.

About half the adults surveyed set a financial goal at the start of the year: 39 per cent wanted to start saving or to increase savings and about a quarter aimed to reduce debts, develop a better understanding of managing money or stop spending beyond their means.

But a quarter had broken their resolution by March and 40 per cent predicted they would have abandoned their goal by June. The resolutions were either too difficult, too low a priority in their lives or were matched with incomprehension of how to make them stick.

In Economou's case, her tight budgeting had taken account of the need to replace her 10-year-old BMW, which kept dying on the road. She had ordered a new $39,000 Volkswagen Golf and had taken out a loan to pay for about half of it.

The first VW accidentally got squashed on the delivery truck, so her new car's appearance was delayed a few months, allowing her to keep saving. But with the car's belated arrival came repayments of $160 a week.

Economou's job also requires her to enter tantalising fashion shops to do business with clients. Just recently, she couldn't go past a dress and a couple of pairs of jeans. She also fell in love with a $500 jacket but put that back on the rack without buying.

"I do slip up often," Economou admits. "Quite often. I'm walking into shops every single day for work. I love handbags and shoes and anything that's new."

A few new clothes at the chain stores didn't break the bank but, on the spur of the moment, Economou also decided to book a week's holiday this month in north Queensland with her boyfriend, partly on credit card. "I probably really couldn't afford it, but I just wanted to get some sunshine before winter kicks in. I'm a bridesmaid the week after, so I thought it would just be nice to get away and chill out for a week."

Money coach Gay Curtis, the author of The Smart Couples' Guide to Money, says many people come unstuck with their financial resolutions because they fail to write them down alongside their income and expenditure to assess whether the goals are realistic.

Sometimes, we fail to write a money plan because the truth is unpalatable, Curtis says, but most often we simply have not been taught how to do it. Parents who fail to budget generally produce children who fail to budget.

"I'm amazed that most people don't keep a record of their spending," Curtis says, urging people to plan for the unexpected and leave a margin for contingencies, such as interest rate increases.

Goals should be broken down into "bite-size achievable bits", Curtis says, and sometimes it helps to think simply, as a child, when saving. If your goal is to take a $5000 trip to a tropical island, draw an aeroplane and divide it into sections. Each time you save some money in a specific holiday account, colour in a wing, the tail or another part of the aircraft. Then keep the drawing on the refrigerator.

If your goal is a bigger one, such as saving for a house, you can apply the same technique. Draw a house plan, then colour in a room each time you save an instalment towards the deposit. Keep the picture somewhere prominent and promise yourself to buy a strictly limited occasional treat.

It can become too easy to spend what you haven't got. Australians now hold more credit and charge cards than ever, 13.4 million, and the average outstanding balance is $2952. Australia's total credit card debt hit a record $39.5 billion in February, a $4.8 billion increase on a year earlier, according to Reserve Bank figures released in April.

Credit cards can be good financial tools, Curtis says, but you should shop around for a low interest card, always pay much more than the minimum monthly repayment and if you lack discipline with credit cards, store them in a cupboard for emergencies rather than keep them in your purse or wallet.

The outgoing president of the Financial Counsellors' Association of NSW, Tony Devlin, says that for a growing number of people there is very little fat left to cut from their budgets. He says access to credit has become far too easy, even for these people, and he wants Australian financial institutions banned from offering unsolicited new credit cards or credit limit increases to customers.

Devlin says increasing interest rates, petrol and utility prices have created unprecedented demand in NSW for emergency financial help.

Economou says credit cards are "not good things, but I do try to pay off whatever is owing". Her credit card is linked to her parents' account, "so I have them to help me pay it off". She spent $1500 on her credit card in March, "which I shouldn't have spent", and another $1000 in April. "I don't think I'd be able to pay it off if my parents weren't helping."

Economou hopes that by doing a little babysitting and continuing her sideline business - designing wedding invitations - she will still have enough funds saved for her investment property deposit at the end of the year, but doubt is creeping into her voice. "I have to be on target because I'm turning 30," she says. "[But] we'll see what happens."

For more information

www.getsaving.com.au

www.cannex.com.au

www.infochoice.com.au

© 2007 Sydney Morning Herald

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