07 5440 5794
SCHEDULE A CALL
wetalkmoney
  • Home
  • Approach
  • Services
  • About
  • Blog
  • Contact
  • Home
  • Approach
  • Services
  • About
  • Blog
  • Contact

27/2/2018

Manage Your Cashflow With A Template Proven to Be Successful (With Example)

 
Picture
I'm eating a hamburger. I see the man next to me carefully picking a slab of cheese out of his burger, wrapping it in a paper napkin, and eating the rest. It puzzles me, so I ask him about it. “Excuse me,” pointing at the napkin, “why did you do that?” The man replied “Oh, every time I eat a burger, I set one ingredient aside. At the end of the week, I have a free burger!”

​While managing your cash flow is important, there’s no need to go that far!!

In fact, in this blog, I am going to encourage you to BLOW YOUR MONEY! Well, at least a little bit of it. There is nothing that will drain your excitement, creativity, and enthusiasm for life than an attitude of all work and no play. It is important that you take some time (& money) for yourself.

But how much should you be blowing on the good times? And how will that impact your longer term goals like retirement and debt reduction.

I want to introduce you to a rule of thumb that can help answer all these questions.

It called the 70/10/10/10 rule, and it will ensure that you keep your eye on the prize (financial independence) while not allowing yourself to get burned out, over leveraged and teetering on the edge of a nervous breakdown. This concept is not new, and I certainly didn’t invent it, but it’s an extremely effective way of handling your money.

So, how does it work.

The 70-10-10-10 budget is built on the premise that a household should function on no more than 70 percent of its earnings. People who subscribe to this budgeting plan set aside 70 percent of their combined incomes for food, utilities, rent, clothing, transport and other necessities.
Picture
​So when buying a house, you don’t think about what’s the maximum you can afford, but what you can fit in to that 70%.

The next 10% of your budget goes toward Debt Reduction. You begin by paying down the highest interest debts first. Once those debts are paid you add the additional money to lower interest debts and pay those off faster.

The next 10% goes to Future Savings. This could be any specific goal like retirement savings, building a share portfolio, a house deposit or even saving to pay cash for your next car (which is a much smarter idea that borrowing for it!) You should have an emergency fund first (which ideally covers your living expenses for at least 3 months)

And the final 10% - Blow It!! This is for you. Life is for living and you need to have some fun along the way. Just restrict it to 10%. Go out to a nice restaurant, take a weekend getaway to the beach, or get a full body massage. You deserve a reward for your hard work, and this will serve as a motivator to keep going in whatever it is that you do.

Example
If you and your spouse earn a combined income of $10,000 per month after taxes, your 70-10-10-10 would look like this: $7,000 allotted for living expenses. $1,000 allotted for savings accounts or investments. $1,000 to additional debt repayment and the remaining $1,000 goes to you.

Within the living expenses portion of your budget, you could create additional categories for the mortgage (or rent), utilities, food, transportation, and any other regular expenses you incur each month.

The Blow It category too could be split in to “now” fun, like going out for dinner tonight and “later” fun, like saving for that holiday to Bali.

Variations
If you are saving feverishly for the deposit on your first home, you could use Blow It money for Future Savings instead. If you had no debt, that could go to the Future Savings pot as well.

Some people also vary the plan's percentages. For example, you may decide to cut down on expenses and live off 60 percent of your monthly income instead of 70. In this case, you could be creating a larger nest egg for your future.

Though it may not be the ideal plan for every couple, the 70-10-10-10 budget has proven to be a successful roadmap for spending, finding a balance between the here and now and future needs.

​Check your budget. Does your spending spending fall in line with the 70-10-10-10 budget. Does anyone have a variation on this? Let me know your thoughts.

Picture
Brooke
1/5/2016 06:39:35 pm

I think this is a great post that applies to everyone.

Tony
1/5/2016 07:58:55 pm

Thanks Brooke, it works!

Tony

Poppy
1/5/2016 08:10:50 pm

Ha ha, I've done a quick calculation and we spend a lot more than 10% in the Blow It category. Probably explains why we don't save anything.

Tony
1/5/2016 08:25:14 pm

Thanks for your contribution Poppy.

The moral of this story is that you need to make an allowance for debt reduction and future savings. Too many people spend everything they have on the here and now, and then saving for a comfortable retirement becomes a real battle. Find the balance Poppy, your future will thank you.

Tony

Tessa
2/5/2016 09:20:33 pm

I notice the Blow It 10% is the last 10%. Is there a message in that?

Tony
12/5/2016 03:36:50 pm

You are on the money Tessa (pardon the pun). If you save what's left, guess what? There's nothing left!! Instead, Blow what's left after you've done everything else.

Nikki
15/5/2016 07:45:07 am

There's no way I can get my life into 70% of income. Any suggestions?

Nikki
19/5/2016 08:48:31 am

Many of us build a lifestyle around most (or in some cases, more) than our income. What this means is that the 'now' is catered for, but we never have enough for debt reduction and the future. This isn't a problem until the future is here, in which case we rarely have the time and resources to fix the problem. My suggestion would be to get some advice (make sure its independent advice) on how you can turn that around. Managing cashflow is the absolute foundation of wealth creation and is something we all need to master if we want to be financially successful. Good luck Nikki. Tony

Nikki
20/5/2016 08:46:53 am

Can I talk to you about it?

Tony
20/5/2016 09:05:15 am

Sure Nikki, give me a call


Comments are closed.
    Get Our Updates

    Author

    FPA Awards - Tony Sandercock CFP - Certified Financial Planner of the Year 2016
    Picture
    The Huffington Post
    The Sydney Morning Herald
    The Age
    Picture
    Money and Life Magazine
    Brisbane Times
    PS News
    Starts at 60
    Seniors Newspaper

    Categories

    All
    Advice
    Behaviours
    Case Study
    Cashflow
    Debt
    Fun
    Insurance
    Investment
    Motivation & Opportunity
    Planning
    Retirement
    Saving
    Strategy
    Tax
    Wills And Estates


    RSS Feed

wetalkmoney logo
Contact Us
Get Updates

wetalkmoney © 2020 - Terms and Conditions  - General Advice Warning - Financial Services Guide - Privacy​

Anthony Sandercock (AR 287974) and TTLB Investments Pty Ltd T/A wetalkmoney (CAR 467267) are authorised representatives of
Boston Reed Pty Ltd AFSL 225738 ABN 89 091 004 885