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How to avoid underestimating your expenses

This article is part of a fictional case study series following "Sarah", a typical first home buyer in Victoria. Read each article to follow "Sarah" through a variety of articles exploring issues related to buying a home.

After Sarah moved in to her house and had everything settled, life was good. The commute was a little longer, sure. But the comfort of knowing that what she lived in was hers alone, made everything worth it.

That is, until the first council rates notice came in!

It wasn’t that Sarah didn’t have the money to pay $400 a quarter. It’s just that she hadn’t accounted for it, which meant she needed to make changes in her budget. This isn’t unusual for new home owners. They tend to underestimate just how much they spend on bills and regular expenses.

Thankfully, Sarah got up to speed quickly. Here’s how she did it:

  • She wrote down a list of every single expense she has throughout the year. That includes utility bills, insurance – even birthdays she needs to buy presents for. Then she started saving money every week for those.
  • She looked at what she spent over a year on utilities. After a year, she had a pretty good idea of what she was going to spend. Then she budgeted for them by taking out the same amount each week – eventually her utility provider allowed her to use “bill smoothing” to pay the same amount each month. (Something to ask your own providers about.)
  • Sarah started spending the same amount on food each week. By meal planning, she was able to more accurately figure out how much she would spend and then never go above that amount.
  • She looked at a year’s worth of transactions on her bank account. By looking back on what she actually spent, Sarah was able to forecast better and adjust her budget. Rather than guessing, she could use actual data!

In the end, accurately forecasting your budget is just about knowing what you’ve spent in the past. By working on actual figures, rather than an estimate, you can be sure that fewer nasty surprises will come your way once you’re in your own house.

SARAH'S TAKEAWAY:

Sarah thought it would be boring to spend the same amount of money each week and plan everything. But it helps her get into a house...so what does she have to lose?

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