Positive Dollar Budgeting
Getting Your Budget into the Positive
Many people are in negative dollar household budgets, since their overspending on credit cards or taking out loans has set them on this path.
This often happens from a change in circumstances. The debts and usual expenses keep going out, but the family has less money coming in. Every week I meet nice people who are suffering in this particular situation, they are often hard workers too, and so it could happen to you.
What is Positive Dollar Budgeting?
What I've learned is you need to develop your budget with a view to get a certain balanced figure per month, plus 10% more.
This 10% is for your emergency fund - kept in a separate saver. And if it builds up to more than 2 or 3 months income, then it can feed into your mortgage offset, or future fund.
When you are out of balance with the budget, then you both need to start on the most flexible expenses. These are:
- takeaways/ cafe / dining out
- furniture, except whitegoods
- gifts, and
- food (to some extent)
You also need to avoid - or at least remember - some hidden expenses that can "blow the budget". These include:
- Train fines (travelling without a ticket)
- Speeding fines
- Out-of-registration fines
- Drivers license expired fines
- Bill overdue payment fees
- Credit card overlimit / late payment fees (from $9 to $30 each)
- Many excess withdrawal fees
- Centrelink repayments
- Accountant yearly or quarterly fees.
Many of these can be avoided by good planning or at least awareness. If you're at a loss for paying a bill or you don't have enough food, go to see your Neighbourhood Centre or local church charity. If you don't want to do this, at least ask for the hardship officer at your utilities provider. Explaining your short term problems, you can usually negotiate better payment terms. In some cases, charities will help out with a voucher, a food parcel, or furniture.
Credit Cards and Fees
If you have a credit card with a high interest rate and rewards points, then if you are not paying the full balance off monthly, you need to look for ways to replace or eliminate it. Look for a zero percent balance transfer offer. Then when you get that card, do not use it - in fact, put it in the freezer in a block of ice. This is because it is a lethal weapon, and new purchases may be charged at 18% interest or more (Australian rate).
Be highly aware of when the transfer offer reverts to a regular rate, and be aware of any fees involved in the transfer (read more tips on what to avoid with balance transfers).
Using credit cards makes positive dollar budgeting pretty much impossible. You need to know exactly what you spend, and have control over it as much as possible. Even people on very good incomes ($80,000 per year plus) have difficulty knowing where their money is going, and often do not have an emergency fund. If their credit card limit is their so-called 'emergency fund' this is not a good plan since if they lose their job or get very ill, they will not be able to pay it back for a long time. So these are the reasons that I advise against them.
You can keep track of where your money goes with the free online budgeting software or else download your banking account into a spreadsheet (this is best if you keep track of all cash buys for manual input, and use a Visa Debit for everything else).
Positive dollar budgeting is all about being in "positive territory" and saving something for the future.
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