She Who Pays The Bills has been keeping a household budget since long before we took up the business of joint accounts and sharing one car (more on that later). When I was perusing The Courier-Mail’s comic-book summary of the Federal budget (a free read in a coffee shop, OK), it came to mind what a jolly old mess households would be in if, like our dim-witted leaders in Canberra, they had doubled their debt from one year to the next.
Some households may already have a deficit: maxed-out credit cards, cars on lease-plans, already-spent-the-redundancy, horrific mobile phone bills and investment houses so highly geared that a tardy tenant or a late-night flitter could tip them into foreclosure.
Those of you who do not have a household budget (a month by month accounting of what is coming in and what is due to go out), well, good luck with that. Those tempted to start need a blank Excel spreadsheet and name it Budget 101. Or, if you want to have the heavy lifting done for you, try this link: https://www.moneysmart.gov.au/tools-and-resources/calculators-and-apps/budget-planner.
The Federal Budget 2015 interactive spreadsheet (above) was set (by me) to show the tax distribution of someone earning $200k a year. Find out where your tax dollar goes at http://www.budget.gov.au/
How to find out how broke you are
Hindsight is a wonderful thing – we over-60s have lots of it and it usually comes dressed up as sage advice with a pinch of arrogance tossed in.
Household budgeting ought to form the core of a Practical Living exam children have to pass before they are allowed to leave school. Moreover (just using that term to show I went to Uni), mutually agreed household budgets ought to be the anchor of prenuptial agreements. Parents should actively involve their children in the process, (Junior Senators get the final say in passing the Family Budget). That is no less odd a situation than the Federal Government finds itself in.
So let’s start with Housing, which includes rent or mortgage repayments, house and contents insurance, Council rates and utilities (electricity, gas, water, heating/cooling). Conventional wisdom is that this should consume about a third of your income. If it is more, you just can’t afford to live where you’re living.
Utilities can cover a range of expenditures that were not around in our parents’ days – mobile phones, internet and pay TV. You probably know of households where Mum, Dad and all three kids each have a mobile phone. There will also be at least one Ipad and two TVs. The technology has become all-pervasive and there are more gadgets to come. The cost to a family can be considerable, especially with teenagers whose lives are governed by peer groups.
The Health portfolio causes families a lot of angst. Should we support the public health system and take the risk with long waiting lists for elective surgery, or do we fork out up to $5,000 a year for private insurance? How much should we set aside for prescriptions, over-the-counter medications, supplements and the like?
Moneysmart devotes a section to insurance and financial budgeting. What you pay depends on your stage of life. A 39-year-old Dad with family commitments should and probably does have a life insurance policy, but he’s about to get a rude shock. When he turns 40 his premiums will rise sharply with the increasing actuarial risk of his dropping dead without warning.
Buy a pushbike, maybe?
Transport gobbles up a large chunk of household money. I mentioned at the outset that we have been sharing one car for as long as we’ve been together. Last time we bought a property, I worked out that the house and half-acre of land cost roughly what we would have spent on a second vehicle over 20 years. We weren’t being especially clever. We just couldn’t afford a second car at the time and never got round to buying one.
The RACQ estimates that car owners spend from about $8,964 a year (to own and operate a small car) up to $21,448 a year for a top of the line SUV. This is based on buying new and running the car for five years. The cheapest of the small cars cost $42,298.71 to own and maintain over five years and the large SUV cost $107,441.14. Makes you think, doesn’t it?
It does not necessarily follow that the family which does not own a vehicle and uses public transport and taxis will save that much over five years. Some city families have two cars but end up using public transport as well, to avoid tolls, parking costs and the stress and delays of commuting by road. Moneysmart’s budget planner advises people to set aside money for fines, air travel, rego and driver’s licences. To which I might add, factor in about 3% a year for inflation in the household budget so that when you renew your licence in five years’ time it won’t be such a shock.
The big imponderable in Moneysmart’s planner is listed as Entertainment/Eat-Out. Seriously? Does anyone budget for the nights when everyone gets home late, tired and grumpy and the easiest way out is dial-a-pizza? Oh and let’s rent a video while we’re at it. People whose work life involves frequent business meetings in city coffee shops will easily go through $100 a week, more if they’re in the habit of meeting friends for lunch.
Children ought to budgeted for, starting with a First Baby Package (cot, pram, stroller, rocker, baby clothes, change table, self-help books, pre-natal classes – shall I go on?) Later on there are toys, books, computer games and videos, not to mention
babysitting, childcare, sports and activities, school fees, excursions, school uniforms and books. Oh yes, and child support (where applicable).
Cohabitation and compromise
The problem with these catch-all budget calculators is you can feel hemmed in. Moneysmart’s “personal and medical” section is where most of the household savings can be made. But it will require that good old mainstay of domestic harmony – compromise ¬– to decide which items among cosmetics and toiletries, health and beauty, computers and gadgets, jewellery and accessories, sports and gym and “hobbies” are expendable. Those of you thinking of co-habiting with someone might want to talk this section over with your prospective partner.
Mind you, it is good for One’s self-esteem and One’s sense of independence to have One’s own money and do with it what One wants (even if Two thinks you’re mad to spend $600 on Fleetwood Mac tickets).
If you have never done the household budget exercise or let it slide, it could be an illuminating start to the weekend. Clearly the people who took part in a recent Choice survey think about household budgets. Their main cost of living concern (Feb 2015) was electricity, then food and groceries, fuel, and health/medical. A third of those surveyed said they were finding it difficult to get by on their present income and 21% said they lived off a credit card to cover the gap until payday.
I can’t see too much in the Federal Budget to ease those concerns.