Finding surplus income
Have you started to feel a slight pinch in the hip pocket when it comes to the availability of surplus income?
Identifying and using surplus income appropriately can be helpful at any stage of life, whether that be during your wealth accumulation or retirement years.
By completing or reviewing an existing budget, you can gain a better understanding of the movement of your money (inflows and outflows) and areas where surplus income may lie.
You may find that your inflows are fixed (unless you anticipate a pay rise or are considering an additional income stream such as the sharing economy). As such, to identify surplus income potential, it may be time to take a closer look at your outflows, especially in relation to your household expenditure.
Itemisation of household expenditure
According to the Australian Bureau of Statistics’ most recent Household Expenditure Survey 2009-10*, the average household expenditure for Australians was roughly $1,236 per week in 2009-10. This is approximately $1,429 per week when broadly indexed for CPI/inflation to June 2017. Your individual circumstances may necessitate expenditure above or below this figure.
At this point, the abovementioned $1,429 per week is not very insightful; however, by drilling down further into the primary and (if you like) secondary levels of household expenditure, you can begin to see where spending habits lie. With more detailed information, it becomes easier to assess whether adjustments can be made.
Based on the average spending habits in 2009-10, the weekly figure of $1,429 is broken down into primary level expenses below.
|Australian Bureau of Statistics* Household Expenditure Survey, Australia|
|Household expenditure catorgories|
(goods and services)
|Total goods and services expenditure|
|Total goods and services expenditure|
|Current housing costs (selected dwelling)||258||18.0|
|Domestic fuel and power||38||2.6|
|Food and non-alcoholic beverages||236||16.5|
|Clothing and footwear||51||3.6|
|Household furnishings and equipment||68||4.7|
|Household services and operation||78||5.5|
|Medical care and health expenses||76||5.3|
|Miscellaneous goods and services||135||9.4|
This can be further broken down into secondary level expenses, as shown below.
|Australian Bureau of Statistics* |
Household Expenditure Survey, Australia
|Household expenditure |
(Food and non-alcoholic beverages)
|Total food and non-alcoholic beverages expenditure|
|Total of food and non-alcoholic beverages expenditure|
|Bakery products, flours and cereals||23.60||10|
|Meat (excluding fish and seafood)||28.73||12|
|Fish and seafood||5.65||2|
|Eggs and egg products||1.62||1|
|Edible oils and fats||1.98||1|
|Fruits and nuts||14.40||6|
|Condiments, confectionary, food additives and prepared meals||26.24||11|
|Meals out and fast foods||72.75||31|
|Other food and non-alcoholic beverages||9.27||4|
If you are unsure about how to break down your spending habits, consider tracking individual transactions via your receipts and bank statements over a period – this will help you to get a sense of how you spend your money.
Post-itemisation of household expenditure
Once you have a detailed overview of your household expenditure, it’s time to assess whether adjustments can be made. Below we’ve highlighted several areas that may be worth considering.
Needs/necessities and wants/luxuries
Making a judgement on what are your needs and wants can vary through your lifetime and may depend on many factors. Overall, fundamental needs that seem universal include clean water, nutritious food, shelter and the capacity to acquire these.
Although, we are not advocating you cut out all want expenses (as enjoying life is also important!), it’s vital to remember the distinction between the two. By understanding the difference, you can assess what really matters to you and exercise financial discipline in areas where you may be living in excess.
Keeping the lights on, staying comfortable during the seasons, meal preparation, refrigerating perishables, bathing, and washing clothes, are important household needs; however, this doesn’t necessarily mean that adjustments can’t be made here or there to save money.
For example, in one of our more recent articles, ‘Electricity bills: Time to get wired’, we discussed becoming more energy-savvy by taking the time to better understand the ‘sum of all the parts’ in terms of the individual cost of each appliance (as well as their energy rating and optimal energy saving usage) that you utilise in your household.
Reviewing your services
Paying bills for the services you receive can often seem like a continuous process. These can be for utilities, car insurance, home and contents insurance, gym membership, mobile and internet plan, magazines and publications as well as digital streaming (e.g. Netflix, Stan, and Foxtel Now).
Evaluating your existing service providers with competitors may help you assess whether there is a similar quality, but cheaper alternative available – and in terms of subscriptions, whether you are actually using these.
Please note: GST now applies to digital streaming services; this has been dubbed the ‘Netflix tax’ and will most likely mean an increase in your subscription costs moving forward.
According to a recent report^, Australians waste over $10 billion worth of food annually, which roughly equates to $1,100 per annum ($21 per week) for each household.
It’s important to note that this is more than just food waste being placed in the bin – it’s also hard-earned money, surplus income potential, which could have been directed towards other areas.
For further information on ways to reduce your food waste, please read our article, ‘Tips for Reducing Food Waste and Saving Money’ or watch our video, ‘Saving You Money and Food Waste’. One of the top tips is to shop wisely – plan meals and buy only as much food as you need.
After you’ve assessed your household expenditure, if you do find areas where surplus income potential may exist and want to use this for investment purposes, talk to us. We can help you to understand how an appropriate use of this surplus income can benefit you moving forward.