by Anthony on September 26, 2008
Signs of financial distress
Financial distress occurs when a person has difficulties meeting the financial obligations. There are several different signs that may indicate financial distress and these include the following:
- Not having the ability to meet basic living expenses
- Not having the ability to repay debts
- Seeking financial help from family, friends or welfare agencies
- Notification of late payment due
- Repossession of assets
How to avoid financial distress?
The best way to avoid financial distress is by managing the budget and avoiding commitments and debt. The following guidelines may help managing the finances to avoid distress.
- No more than 30% of the regular income should go on housing expenses such as rent, so if the expenses are higher it is advisable to consider finding another place with lower rent.
- No more than 20% of the regular income should be spent on repaying debt. This is called “debt servicing”, so a person should especially be wary of taking on more debt if it’s over this figure.
- No more than 20% of the regular income should be spend on purchasing a car.
- No more than 5 % of the regular income should go towards running and on-roads costs (such as petrol, insurance and registration).
Sometimes it is difficult to avoid going over the guidelines, particularly in areas where the rent is high and there is the necessity of having a car to go to work. But there should be an effort towards reducing the on-going costs. In order to restructure finances it is advisable that a financial counselor is seen.
Consequences of financial distress
There are a number of things that could happen due to a financial distress. For example, the failure of paying utility bills, such as electricity bills, may lead to the service being cut off. Also, not being able to make repayments on something, such as car, it may lead to repossession. But the worst consequence of financial distress is bankruptcy when all the assets will be sold. Bankruptcy can also cause difficulties at getting loans or credit in the future.
by Anthony on September 14, 2008
“Back in the black” is a term used to express possession of extra money, after meeting all the basic necessities as well as a few luxuries.
There are a few things that these extra money can be used for.
So, they can be used for paying any outstanding bills, such as credit card bills, or bank loans. And by paying bills as soon as possible, paying interests can be avoid. And if there are extra money left after this, a person can put this extra money aside and start saving in order to achieve financial goals.
by Anthony on July 1, 2007
Income
First you need to work out and write down your net income. You can find your net income on your payslips or Centrelink statements. You could also check your bank statements or tax return. Include any new income that you may expect.
You will need to distinguish between:
- Gross Income - your income before tax and other deductions are taken out
- Net income - your gross income minus tax and other deductions such as superannuation. Net Income is what you actually receive.
Tip: Your income is all regular money you receive including child support and the family tax benefit.
Expenses
Next you need to work out and write down all of your expenses. Most important are basic living expenses such as rent, utilities, clothing, food and transport. You also need to include other necessities such as insurance and medical expenses. Leave a gap or use headings so you can easily see which are your living or essential expenses and then work out and write down luxury or easily reduced expenses such as gifts, regular trips to the movies, shopping, takeaway or holidays.
Caculations
Now that you have written down your income and expenses:
- Add totals for each.
- Deduct living and essential expenses from your income. The amount that is left is called your disposable income.
- Deduct your luxuries and other non-essential expenses from your disposable income.
- The amount (positive or negative) that is left after this is your balance and can tell you a lot about your financial situation.
Congratulations! You now have a record of your income and spending. Now you can see where your money comes from and more importantly where it goes!
by Anthony on June 29, 2007
Before you begin you need to decide if your budget is going to be weekly, fortnightly, monthly or yearly. Most people find it helpful to make their budget match how often they get paid. You will need to convert all of your income and expenses to match this time period.
The following chart allows you to convert your budgeting periods
Example: if you have a quarterly gas bill but a fortnightly budget you would multiply the gas bill by 4 to get the yearly amount and then divide the yearly amount by 26 to get the fortnightly amount.
Be organised
To make an accurate budget you need to keep a record of your income and your spending - you need to be organised.
Most people find it works best to have a filing system such as a filing cabinet where you can keep your payslips, statements, bills, receipts and other financial records. You may also find it helpful to keep a diary or a payment & cash receipt book.
Tip: If you have not kept your past payslips, statements and bills most companies will provide another copy on request, although they may charge an extra fee for this.
by Anthony on June 29, 2007
Our first guide is budgeting. If you want to save money having a budget makes it much easier.
This series will provide you with a step by step guide into creating a good budget. This will cover:
- Budgeting basics
- Pre-budget organisation
- Income
- Expenses
- Calculations
- Budget presentation
What is budgeting?
Budgeting is the process of balancing your income with your expenses, and saving what you can to achieve your financial goals. A budget is a plan of how you will manage your income and spending in the future.
You may not realise it, but every day you make budgeting decisions. When you make a choice between the cost of eating at home and eating out or which brand to buy at the supermarket you are budgeting.
This ‘micro budgeting’ is helpful but it is also important to have a ‘macro budgeting’ – a ‘big picture’ so you can see what you spend compared to what you earn. When we refer to budgeting in this booklet we are talking about macro budgeting.
Why is budgeting important?
- Everyone is on a limited income, a good budget will help you to get the most out of your money and avoid debts
- Budgeting can help you achieve your financial goals whether it be buying a new TV, going to a concert or buying a car
- Budgeting can help prevent you stressing over money
- Budgeting can give you a sense of control over your finances and your life
- If you can see where your money is going, it can help you manage your expenses more effectively
The next step is pre-budget organisation