Money Minute – May 12 2017 How to Budget

 

How to Budget

Good morning to the both you! Absolutely fantastic!

We are going to tell you now, in any budget, mum’s all know this – household business or government – there are several ways to get to the end result.

Now you’ve got income, that’s money coming into the bucket. You’ve got expenses, that is money going out. You got investments – now they might rise or fall in value and might even produce you an income – and you’ve got debts that incur interest and that reduces your income it’s pretty simple, right?

So in the perfect budget you increase your income and you reduce the expenses.

That increases your surplus or profit and the money you get then reduces your debts.

Forecasting growth

Now, the problem is if you forecast growth, an increase in your income, you’re
never quite certain it’ll happen until it does happen.

It’s a bit like budgeting for say a pay rise in twelve months’ time. Until you get that pay rise, you’re not quite sure it’s actually going to happen.

But what you can be certain of is, if you cut an expense – that money goes straight to your budget bottom line.

It’s guaranteed from the moment that you make that cut. But cutting expenses can be unpopular.

I think a household full of modern teenagers – you might save a hundred bucks a month if you cancel the subscription of Wi-Fi but think of the grief you’ll get from the family!

So most people, and governments, generally only cut when they genuinely faced with a crisis.

Now if the growth doesn’t come, or if you miscalculate, then the losses rack up and the interest bill will keep on rising.

Interest costs ballooning

Now, in Australia, we already paid the best part of $14 billion in interest a year. Net debt is expected to peak next year at $375 billion.

It will still be $366 billion in four years time provided everything goes right.

Now gross debt takes in, ah rather, net debt taking government assets but gross debt, that’s the total debt. Well that soars out past $700 billion over the next ten years and again – provided everything goes right.
This is the tale of our budget position in Australia – nobody wants to cut; everybody’s forecast and growth hoping for better times, that may or may not arrive, but nobody wants to be unpopular with the families.

By the way happy Mother’s Day all and I reckon a few of you would now have a balance that budget with a bit of a plum.

Markets

Dow Jones down 23 points; Aussie dollar 73.8 US cents

Happy Mother’s Day out there

 

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