"I want to be able to save and enjoy life as best I can," says Roslyn, who is seeking professional help to improve her budget. She is a great believer in budgeting but, despite having a plan for the past five years, she thinks her saving habits could be better.
Shopping is Roslyn's downfall. She doesn't do it often, but when she does hit the shops she does it with a splash. She doesn't carry much cash, but can be tempted to resort to her trusty credit card.
She pays her credit-card bill each month, but even infrequent spending sprees eat into her savings.
Roslyn is looking forward to moving in with her boyfriend next March. She wants to save as much as possible so she can make a lump-sum payment towards the mortgage (the house is now in his name, but will change into both their names). They also need some money to furnish the house.
"Look at my budget and tell me if there's somewhere else I can do something," she says. She plans to buy a new car soon. "I hope to get about $20,000 for my car and maybe then have to spend up to another $8000 to update my car to a newer car."
She contributes $150 a month into a managed fund (now totalling to $2000). She has $13,200 in a term deposit at 6 per cent, which is due to mature in March. She pays $900 a month into another account.
She wants a better budget and the discipline to stick to it. Being paid monthly makes budgeting more difficult, she says.
Roslyn says her boyfriend of six years has a similar attitude to money but is more disciplined. They plan to get married.
She would also like to know the best way of working out a household budget when they live together. Should they both contribute to the mortgage, or should just one pay it and the other pay the rest of the bills? Or is it better to split everything?
Nicole Webster, a certified financial planner with Bridges Personal Investment Services, a member of the ASX and the Financial Planning Association, replies:
A budget provides the framework to both manage financial concerns and plan for future goals. However, it does need to be flexible. Roslyn's budget is quite detailed, but it does not include some regular spending such as entertainment and social activities. Insurance premiums are also often areas where costs can be reduced by reviewing insurable low-risk items.
Roslyn should also reconsider the timeframe of her short-term financial goals of upgrading her car and buying into her boyfriend's existing mortgage. She should try living with her boyfriend for up to 12 months before buying into his mortgage - to both maintain her financial independence (just in case things do not work out) and to allow her time to consolidate and maximise her savings.
This will also allow her to borrow most of the $8000 required to upgrade her car. Most of this personal loan can then be repaid before she commits to a larger home loan. This will allow her to understand the discipline required to repay a loan while saving towards her home goal. Her excess savings can be used to repay the personal loan.
To control her periodic spending sprees, Roslyn could reduce her credit-card limit.
After 12 months or so of further savings (about $10,000), Roslyn should be in a good position to share her boyfriend's mortgage. At this time, she may elect to repay her remaining personal loan to keep things simple (and due to the higher interest rate applicable). Her savings plan into her share-orientated managed fund should also be continued for as long as possible, as it allows her to build wealth outside of her own home and superannuation, and maintain financial independence.
The restructure of the home loan will need to be carefully considered to ensure equity and fairness, with ownership structured as tenants in common (rather than the traditional joint tenants). All mortgage and household costs should be equally split in the first few years. A line-of-credit facility could then be considered.
This facility helps reduce the interest paid (and consequently the term of a mortgage) by channelling all income into the loan when earned and then drawing down small amounts to meet living expenses (via a credit card). Redraw facilities are also available for tax-effective investment or capital expenditure. This should only be used by disciplined individuals, as a strict budget is essential.
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