Are you worried that your property investment expenses will see you resorting to living on baked beans to get by? Your Investment Property reveals five top strategies to get some bounce in your budget.
1. Review your budget
Too many people panic when money gets tight, and make unsustainable cuts to their expenditure. While this might be effective in the short term, it rarely works in the long term – you might be able to cope for a while, but eventually you’ll get fed up denying yourself life’s little luxuries and will splurge – potentially ruining your budget. Instead, it’s worth sitting down and going through your income and expenditure in a methodical fashion.
David Hayward, managing director of the Money Institute, suggests splitting your expenses into three main areas: fixed costs (A), discretionary spending (B) and wealth building (C). He breaks them down as follows:
“‘A’ is basically the expenses that you’ve got to meet: your home loan, investment loan, utility payments, insurance, investment property expenses, and so on,” says Hayward.
“You should aim for this to make up around 50% of your net income. ‘B’ is lifestyle spending: clothes, shopping, going out and so on. This should be around 30% of your net income. Finally, ‘C’ is the spending that will help your financial future – paying off ‘bad’ debt like credit cards and other consumer debt, and cash savings. This should make up the other 20%.”
Hayward emphasises that these percentages are a guide only, and you shouldn’t panic if your expenditures are way out. But you should carefully work through each category to bring your spending as close as possible to the above numbers – and here’s how.
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