Sunday, 4 September 2011

where does all my money go?

The most asked question in my humble accounting firm is "what's my tax refund going to be?" closely followed by "where does all my money go?".  A large proportion of my clients have no idea what they actually spend their money on. They have vague recollections of trips to designer shoe stores or online binges on power tools.  Primarily, however, I think they are starting to wonder if there is a reverse tooth fairy stealing from under their metaphorical pillow.

Sometimes, just for fun, I like to shock them by asking what their monthly mortgage repayment is and then I multiply it by 12 and tell them what their house is costing them a year. It's usually followed by silence.....and crickets chirping.  The ultimate thrill arrives when I ask them what they spend at the pub each week and extrapolate that into a year's worth of drinking.  I think I'm spreading the good word of sobriety when I do that.  Do as I say, not as I do clients.

Now here's the part where I get all boring - do a budget people! Even a really simple one so you have a rough idea where your money is disappearing to.  Figure out your household income, take away all the expenses and then decided what to do with the remainder.  Some for fun and some for saving or investing.  Even if you don't have much left over for saving (or the pub) at least you'll be able to locate where all your money has gone.

If you are considering going into negatively geared rental property or shares the budget becomes a really handy tool.  Knowing your cash flow position is very important because no matter how 'tax effective' these investments might be you still gotta eat.

Include a bottle of wine on the budget every few months, settle in for a bit of dull 'budget' time and tackle the mystery of where all your money has gone and where you want it to go.  I promise you it feels better buying those sky high heels or that hammer drill knowing where it fits into the puzzle.