Thursday, July 22, 2004

Happy New Financial Year (Part 2)

In my last post on this topic I spoke a bit about my financial situation, both business and personal, and what sort of measures I needed to take to be able to sustain myself over the next 12 months or more. I discussed how long I could last on the cash reserves I currently have and my current spending patterns. Since then I've finalised my budget and have begun forcing myself to stick to it.

In preparation for this over the past six months I've dramatically reduced my expenditure both on the business and personal sides. The biggest savings came from selling my car and moving out of my rented office. I do miss the office space but I'm doing pretty well without the car.

About the same time I also substantially reduced the wage I pay myself to become more accustomed to making do with less. I think this is one of the better moves I've made. While I've quite often overspent my budget during the past 6 months, I know why I have and now that the need to keep to that budget is more pressing I should be able to stick to it.

In my previous post I averaged my personal spending over a 6 week period and discovered that I was spending roughly $160 per week on miscellaneous expenses. Primarily these were cash transactions that I really couldn't account for. Since I was overspending my personal budget by about $70 a week they were the obvious thing to look at reducing.

My idea to try and reign in that miscellaneous spending was to make myself more conscious of exactly how much I've spent that week. When you can just keep going back to the ATM for more money, you can easily go over budget very quickly. So instead I'll make one visit to the ATM just after pay day and withdraw $90 in cash. That $90 will have to last me the whole week, and will pay for all my beer, movies, eating out, CDs etc etc. I won't allow myself to return to the ATM until the following week, no exceptions... well very few exceptions.

That $90 won't stretch very far so when I'm buying groceries or buying weekly bus and train tickets I'll use EFTPOS or my credit card. Since those costs are reasonably regular and don't tend to vary there shouldn't be any overspending issues with using my cards for those.

So here's my new personal budget dividing up my $325 per week. It needs a bit of work in the utilities sections but I'll do some further calculations when next bills arrive.

Rent$135
Groceries$55
Trains, buses and taxis$30
Miscellaneous$90
Telephone$10
Gas and electricity$5
Total$325

If you're ever in a position of having to follow a strict personal budget I strongly recommend you just lump all cash transactions together and don't worry too much about them. Recording cash transactions is just too hard. You can never keep up, you always forget half of the transactions and you're continually making stuff up to try and compensate.

Just count how much money is left in your wallet once or twice a week and enter the difference into your personal accounting software under Miscellaneous. Pay for everything non-trivial with EFTPOS or credit cards. Your bank statements will then become a record of all your important spending which you can easily enter into your accounts.

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