If you didn’t already know, interest rates are now at their all-time lowest at a reserve rate of 2.75 per cent. And banks have begun to lower their interest rates – which is good news for borrowers. In this week’s Make Credit Work For You post, we look at how can you best benefit from those cuts by saving.

You might be saving for a home, or you might be saving in your home – but we show you how to budget. If you’re saving for a home loan, now seems like a great time to purchase – with interest rates at their all-time lowest. If you haven’t quite made it there with your deposit, we look at how a strict budget now might get you there quicker. If you own your own home, take advantage of these low interest rates by paying down your mortgage as fast as possible. This can give you space to re-borrow, to invest or to renovate in the future.

By Graham Doessel, Founder and CEO of MyCRA Credit Rating Repair and www.fixmybadcredit.com.au.

When interest rates are low, you can borrow or if you have current debt, you can pay your debt down in less time. We show you how you can do that, with tips from Savingsguide.com.au. Their article ‘A Guide On How To Budget To Save Money’ caught my eye this week. With new credit laws coming, and new information about you becoming available to lenders very soon, I believe it’s time to help Australians develop some really good credit habits, and to have their credit reports reflecting that.

Nothing helps with credit habits better than a budget does. As soon as you start with a budget, it forces you to take stock of what you have, and become aware of your spending and credit habits. Australians in that frame of mind are more prepared for next year’s changes to Privacy Laws. And prepared they do need to be. Borrowers will be under the microscope. And they need to be on top of their game when it comes to their finances to not be disadvantaged by credit reporting changes. Let’s look at an excerpt from Savingsguide’s article on how to create a budget:

How to create a budget

To make a budget, you must consider the following:

Income

Decide whether your budget is going to be weekly, fortnightly. I would usually choose whichever budget aligns with the regularity of when you get paid. Once you’ve decided, write down all the income you receive in that month.

Expenses

Write down everything you spend in a week. Chances are you won;t get it right on the first stab, as we spend unconsciously. Here are some ways to track what you’re spending for your budget:

Keep a spending diary. Keep all your receipts, and tally them at the end of the week.

Go through your daily bank account, to check for debits from your account (insurance, membership fees et) that you might not even have be aware of.

Use a tracking app, such as Expense Manager or Expenditure.

Are you in the red? Or in the black?

Tally up your figures, and you’ll have an initial idea of whether you are running your finances in the red or the black. If you’re in the black, fantastic! You now can just add some extra space in your finances. If you’re in the red, a budget will help you to get back on track. Why not colour code using red and black to help you?

Analyse where your money is going & where your budget is leaking

Where is the money heading? What area of your life is draining your finances the most? Chances are, if your budgets look anything like mine, entertainment costs are always shocking. The amount I spend unconsciously on food, shows and late night tipples are, without a doubt, the major unnecessary drain on my income.

What are your essential costs, and how much do you have left over once they’re paid for?

Trim the fat from your budget

Now look for where you can cut back. Discretionary spending is a major source of savings in a budget. Aim to reduce your spending, not cut it out entirely. Great budgets are consistently refined and improved, so start relatively gently. How much do you need to save to get into within your income? Where can that come from easily, and sustainably?

Consider these points:

Housing costs should only comprise 30% or less of your net income. If it’s costing more than that, perhaps it’s time to make some big decisions about where or how you live.

The average Australian household spends the same amount on alcohol as they do in utilities per week. If that’s the case, there is a major saving opportunity there.

We should always consider what we have (in the pantry, in the house to sell) when writing out budgets. We should aim to declutter our life to add extra money to our budget. Sell the stuff you don’t need people! Draft budget

You now have a draft budget. I would call it a draft, as it is a work in progress, one that needs continual revision and maintenance. You should have allocated a general sum to each section of your life, including a sustainable and sensible amount you will be saving per week.

Tips to help you succeed with your budget

For the best results when budgeting, you should consider these three core principles:

Automate your money. As soon as your pay comes in, automatically move your money into the sections you have decreed for your budget. This means money gets automatically deposited for rent, debt repayments, savings etc. We can be our own worst enemy, so take yourself out of the equation.

Discretionary cash. For your entertainment budget throughout the week, I like to have it in cash. The reason? Because once it’s gone, I know I’ll just have to stay in and watch TV until next week.

Keep it simple. It’s essential to not start out too strictly with a budget, it’s often where people fall down (more on this below). Remember, you can always save any money that’s left over and you can always change the amount you’re budgeting throughout the week.

Maintaining your budget

Once you have a budget, you will find yourself needing to occasionally maintain it and update it as you go. Track your budget progress

The absolute best way of maintaining enthusiasm and drive is to watch how your finances have improved. Look at your dwindling debt, or increasing emergency fund. You’ll feel empowered and capable of continuing all the good work. Use a budget program

Apps such as iReconcile or Moneybook can be a great way to easily manage you budget if you’re technically minded. Alternatively there is the Savings Guide made budget planner for purchase here.

Constantly revise your budget

I can’t stress this enough. Budgets are ongoing processes- sometimes they’re too harsh, sometimes they’re too soft. Could you save more? Are you living at an absolute pinch, and eating only two minute noodles? Extremes are never good, and great personal finance is about sustainable saving.

Keep your budget goal orientated

It’s easy to lose motivation, and everybody does. The key is to continue to look at your goals, adapt your goals and celebrate how much closer you are to achieving them.

Fixing your budget

Got a problem with your budget? Here are some solutions to common budgeting woes.

Losing motivation: Your budget fit isn’t right. Either your budget is too tight, and you’re unhappy or it’s too loose and you’re not seeing the changes you need. Use some trial and error to work out what fit works for you. You can change your budget figures from week to week, until you get it right. The important thing is it’s both comfortable and effective.

Broke the budget: It happens to everyone. Don’t give up on the whole thing because of one bad week. It’s a slip up, not game over, so just move on.

Forgotten expenses: A major expense can easily be forgotten, and can easily undermine a lot of hard work when it it is. Don’t panic, this is why we budget, to ensure that unexpected expense is covered. Note the expense in your revised budget, and you can be sure you won’t have to worry about it again.

You get a pay raise: Add it into your budget, but aim to invest the raise in your savings or debt repayment. You’ll be amazed at how quickly your finances improve, and how budgets can enable you to live within your means.

If you have tidied your budget up, and managing to make headway with savings, it is a good time to take stock of what your credit file says about you. Before you apply for a home loan, check that your credit report is accurate and up to date. Each year you are entitled to a free annual credit report – and if you haven’t ordered one this year, you should.

You can request a free credit report through Australia’s credit reporting agencies such as Veda Advantage, Dun & Bradstreet or Tasmanian Collection Services. You may need to contact all of these agencies. A report will be mailed to you within 10 working days. If it’s urgent you can request one quicker for a fee.

Check that everything reads correctly. If there’s anything you’re not sure about – particularly credit listings which might hold you back from obtaining credit, address them with your Credit Provider before you apply for credit.

To get help to make a case to dispute your credit listing, you can contact a credit repairer. Click here for more advice on this.

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