What does a typical week in spending look like for your family? If you were tasked with listing how much money you spent and what it was spent on over a 7-day period, would you be able to accurately complete it?
Answer, truthfully probably not. Even if you were able to come up with the majority of your expenses, I bet there would still be non-discretionary items like the avocado on toast you paid $8 for because you were running late, or the kid’s school excursion that was rolled into last month’s fees you didn’t notice.
In Australia, there are different levels of income and those in the higher brackets often fall into the trap of not counting the dollars spent – well because, let’s face it maybe it’s not necessary at the time because there is enough cash flow, but it could end up costing you big when you hit retirement phase.
Let me give you an example. My husband and I both earn a decent salary, so our combined income is probably what most would consider to be at the higher end of the spectrum. We run a successful business, own a few properties and on the surface things look like they are going well financially.
My husband, who is very big into self-learning, has recently read the ‘Barefoot Investor’ written by Scott Pape, who offers advice through his own personal experiences of investing in and gaining financial freedom. He decided that we should start budgeting weekly, so that we know exactly what we are spending money on and to gain control of our finances.
Now, I will be honest. My immediate response was that this sounded like something our accountant should be doing. In between juggling our busy lifestyles, the last thing I could imagine having to do was sitting with a calculator each night working out what I could spend the next day. Still, as tedious as I found this, I agreed. Our experiment showed up some cold, hard facts. We were spending our salary, but not leaving a lot of room for retirement savings and the savings that we were putting away would often be used for ad hock items due to our spending habits. We had fallen into the trap that many others I think can relate to of spending and not saving.
We had discussed what age we would retire at, but without being able to account for our spending this would be a hard target to achieve within 20 years. We decided to seek some help (enter the accountant to save the day) and used a budgeting tool to identify the gap between our current financial assets and where we want them to be when we retire. The gap was much wider than I thought!
There are key lessons learnt here:
- The quicker you start planning for retirement, the greater the landscape will look when you get there
- No matter what your income, sticking to a budget is necessary to ensure you have full control over your spending
Juggling a busy life often gets in the way, and if your circumstances are a little more complicated it may help to leave the budgeting to a professional. Commercial Concierge offer a complimentary 360 degree view of your world, and have developed their own ‘gap analysis’ tool to help you budget for your lifestyle while still being able to retire and leave a legacy.