Financial Advice

The Business of Budgets

As details of the new Federal budget roll out, we’ve taken a look at how previous budgets have performed and what learnings we can take away from planning and living by a budget.

“Having a budget is telling your money where to go instead of wondering where it went,” – Dave Ramsey

You might have heard a number of figures being thrown around with the new Federal budget announcements and it’s an ongoing conversation with politicians about spending, cuts and promises. Being a budget for the entire country, the figures applied to various activities can be so large the meaning of value is lost to the average person like you and I. Individuals may or may not feel an immediate impact from the budgetary decisions made by the leaders of the country, however there are important factors to be aware of nonetheless, to monitor and to learn from and to apply to your own financial scenarios.

When we take a closer look at our country’s budget expenses for the 2017/18 year we see a clear problem or perhaps a looming trend for our future.

  • Budgets are set, however, expenses are usually exceeded – budget blowout
  • The actual estimated revenue raised was 20.3 billion less than the expected revenue for the 2017/18 year – inadequate revenue/income to support expenses
  • In the last 5 years spending has continued to increase, with Health spending, for example, increasing by roughly $13 billion compared to the budget of 5 years ago

To help put things into perspective, let’s use the scale of seconds as a measure of time on a clock so that we can better understand these large values.
1 million seconds equates to 11 days.
1 billion seconds equates to 32 years! 

So yes, the numbers and the increases are very big. We’ve got less revenue and increased expenses as a trend… it doesn’t take an expert to see that this is unsustainable.

For some, the way Australia is managed sounds all too familiar, it almost reflects the family household, just at a higher level.

So that we don’t terrify you too much (there’s plenty of stats out there to do that), let’s take a look at what we can learn from this scenario.

When looking at budgets, the same concepts apply whether we’re looking at a business, a family or a country.So let’s consider ways to make the country and our household a better and more prosperous place.

Simple rules that we should all follow:
We’ll say ‘family’ in the list below, and this can be applied to personal families, business families or our entire country – the big Australian family.

  • The family should have a suitably qualified adviser to guide and govern us on all aspects of financial affairs.
  • We need to have a plan for both the short, medium and long term.
  • We need to educate ourselves and our children on the matters of money, saving and the ways of creating wealth.
  • We need to ensure our expenses are less than our earnings.
  • We should create a budget and stick to it and be accountable to the whole family.
  • We need to have someone in the family who is responsible for managing the household budget and they need to be accountable to the whole family.
  • When interest rates are low we should reduce bad debt wherever and whenever possible.
  • We should be investing in assets that grow and that will create wealth over the long term for us both in our old age and for that of our children’s future.
  • We need, as a family, to engage in a healthy living program of eating and exercise as this will contribute towards keeping the cost of health expenses down and place less pressure on the family or budget.
  • We need to take responsibility for our own welfare and accountability and teach our children that we must work for what we want and not expect it to be given to us. This in turn has a multiplying effect on the future of the economy.
  • We need to protect our family in the event of something happening to the key breadwinners as it put more pressure on everybody else

Imagine, in a perfect world, if everybody; employees, family, government and leaders worked together from the bottom up and from the top down on managing achievable budgets how stress-free and prosperous we all could be!

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Disclaimer: Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information. Before making a decision to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product.

The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way.   Opinions constitute our judgement at the time of issue and are subject to change. Neither, the Licensee or any of the National Australia group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document.

Sources:
Federal budget 2012/13 and 2017/18
Life expectancy data tables 1976
ABS tables average home prices 1970 2016

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