GOOD BANKING STRUCTURES REDUCE FINANCIAL SPLURGES

Whether we’re good or terrible with money, it’s like business or physical performance – we could always do better.

Which is why in addition to the more obvious loan application process itself, our equal focus has always been on the post-settlement debt-management structure. Who doesn’t want to get rid of debt faster?

Here, we’re going to show you an example of how we set up our client’s banking structures to reduce splurges, without feeling like it’s a finance diet. It’s our Christmas gift for My Coast Home readers.

The over-arching objective is to segregate and automate the nonnegotiable commitments, and then create consciousness around the remaining priorities.

STEP 1: Grab a glass of wine post the Christmas celebrations, and undertake a budgeting exercise so that you have a good idea of what you are currently spending (or would like to be spending) in key areas such as:

• Housing, including rates and utilities
• Groceries, including alcohol and pets
• Recreation, entertainment, kids sports, eating out
• Transport, including all motor vehicle expenses
• Education
• Medical and health
• Insurances
• Personal care
• Gifts and others, as relevant.

There’s plenty of online tools available including the Money Smart Budget Planner on the ASIC website. You can generally download and categorise spending from your internet banking, or contact our office for more assistance.

STEP 2: Create a set of buckets like those pictured that make sense for your household. Although more buckets may be required, the simpler the better. The key is to separate regular, known expenses from daily spending, which can be difficult to monitor. Separating the two creates greater consciousness of the controllable spending. If greater scrutiny is required in a particular area, such as groceries and eating out, set up a separate account to manage those particular items to a budget.

STEP 3: Start each bucket, including the hub account with a surplus so that there’s no anxiety that an account is going to run out in the short term.

STEP 4: Create monthly auto payments of more than is required into the household commitments and everyday spending accounts. at the same time, also allocate a conservative but sufficient amount to savings and spending.

STEP 5: Monitor and review. Ideally, both the household commitments and everyday spending buckets will be building up a surplus, that can be swept into the savings or spending accounts from time to time.

This structure is also ideal if you’re planning to apply for a loan, and the application is likely to be a little on the complicated side.

There’s now been enough media coverage for would be borrowers or refinancers to know that it’s difficult getting loans approved at the moment. In fact, up to 40 percent of applications are now being declined.

It’s not that banks want to say no. They simply don’t want to be criticised for saying yes – and they’re not taking any chances. Demonstrating a history of conscious debt and cashflow management removes any ambiguity about whether a loan is affordable, even in the most extraordinary of application circumstances.