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Wednesday, 30 June 2010

Budget Challenge 2010-11

I used to spend less than $50,000 a year on our family 'living expenses' - managing to save the rest of my salary via salary sacrifice into superannuation and paying interest on my margin loan investment borrowings. However, I haven't been following a strict budget for the past couple of years, and despite having more salary coming into my bank account each month (due to the reduced cap on annual salary sacrifice into superannuation) I seem to be running short of cash each month. That probably party due to the interest rate on my margin loans increasing substantially while the dividend income has dropped, but I suspect I'm also overspending on 'discretionary' items each month. Plus some basic costs (such as utilities) have risen faster than income recently.

So, I've decided to challenge myself to stick to a formal budget during the 2010/11 financial year, which starts tomorrow (1 July). Aside from only spending according to 'the plan', the only big change will be to cut out my spending on junk food and slash my consumption of diet coke - both of which will fit in with my other goal of losing weight and sticking to a healthy diet.

My monthly budget for 2010/11 is as follows:

INCOME
Net salary income............$4750

EXPENSES
Homeloan and childcare..[1]..$1300
Margin loan repayments..[2]..$ 850
Margin loan var interest[3]..$ 190
Savings plan deposits........$ 200
Petrol.......................$ 150
Car running costs............$ 85
Grocery shopping etc.........$ 850
Medical and dental...........$ 400
Rates/water/electric/mob ph..$ 250
Uni fees and textbooks.......$ 150
Computer expenses............$ 65
Gifts........................$ 30
Income insurance.............$ 80
Misc.........................$ 150

Notes:
[1] DW contributes an equal amount towards childcare costs and mortgage costs (interest only on home on rental property loans) and our rental income covers the balance on the monthly mortgage costs.
[2] I want to pay off some of my margin loan principal during the year which will offset the capitalised interest prepayment next June.
[3] I fix most of my margin loan balance each year and pre-pay 12 months worth of interest each June, so this amount is for the monthly interest on the remaing variable loan balance.
[4] Piano and Judo lessons, school costs etc.

Excluding the margin loan interest and repayments, and the savings plan deposits, the 'living expenses' part of this budget comes to $3,510 a month, or $42,120 pa. Adding in DWs homeloan and childcare monthly contribution of $1,300 brings our total household 'living expenses' budget up to $4.810 a month, or $57,720 a year. I'll track the actual monthly expenses against this budget and see how things go - I suspect I've forgotten a few 'ad hoc' items and that some categories will be hard to keep within budget. I may look into using Mint's free budget software to track my data, otherwise I'll use my old Quicken application. Hopefully this year's annual salary review will provide some slack.

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