Do you want to hand over the reins? Budget specialists
What do they do?
There are several companies out there at the moment who profess to have all of your money troubles sorted out for you on the other end of the phone.
One of the biggest things that budget specialists do, is automate your finances. All of your pay goes to them, from that, they will pay your bills and debts, transfer you a small amount of spending money, save some for you if that is what you need and then take a monthly fee for their trouble.
So here is what I know about them. There is usually an upfront fee/establishment fee of a minimum of
about $1,000 which increases depending on the level of advice needed.
From here, there is then an ongoing monthly fee to manage your finances for about $180 a month, however please keep in mind these figures will vary depending on your personal situation and the complexity of your finances. The exact figures will be different for each person, so please don’t take this as exact information.
For the first year you are going to pay aprox $3,200, and then $2,200 every year after that. Once you have paid the initial establishment fee, you are not locked into a contract, assuming you pay the establishment fee up front. If you choose to space out the establishment fee over a few months, you are locked in until you have paid it off.
As mentioned, you are paying them to manage your budget, plain and simple. Or in other terms, you are engaging a budget specialist in order to outsource your willpower. Budgets take organisation and skills that can easily be learned, that’s not the hard part. Sticking to a budget takes willpower. Budget specialists literally make a business out of taking the ‘willpower’ problems away from you.
Upon meeting with a budget specialist, they may offer you an option to automatically reduce your debt up front. Sounds amazing doesn’t it? If you can however, avoid this at all costs and try and manage the full debt that you have.
I know you think I am crazy right now but I will tell you why. ‘Debt Settlement’ or ‘Debt Agreements’ are an option available to people who have significant debt and are falling behind on payments. From the outset it reduces your debt, but in the long run it may come back to bite you on the butt. The debt agreement is a binding agreement between you and your creditors and falls under part IX of the Bankruptcy Act 1966. It is essentially an act of bankruptcy and can have quite serious ramfications.
If you do enter into a debt agreement, the following will apply to you:
- You will be permanently listed on the ‘National Personal Insolvency Index”,
which is a public record on the Australian Financial security admin
- Your details may appear on a credit reporting agency’s records for up to 7 years and may affect your ability to get credit in the future.
- You must tell all new creditors about the debt agreement when you take on any new debt.
- If you have a business and are trading under another name, you must disclose your debt situation to anyone who deals with your business.
- The debt agreement may actually prevent you from practicing certain professions or being employed in certain positions.
- As you can see there are some pretty severe repercussions from this option.
Tips for you if you do decide to engage a budget specialist
Clearly there could be some negative outcomes with these companies, but for some people who really struggle with managing their finances, this may be a good option. If you are going to go down this path then you should really consider the following:
- Be engaged! I know the whole point of this exercise is to outsource your duties here, but you may as well learn a thing or two whilst you are paying for it. If you don’t change your ways you may fall back into the same financial rut when you decide you no longer need their services. If you have access online, then log in frequently and see what is going on with your accounts. Get on the phone and ask questions if you need to, it’s your money, you should be aware of what is going on with it.
- Make it a goal that you actually don’t want to use them at some stage in the future. You are paying for their service, and for those of you who have a hard time budgeting it can be worth it in the short term, but all they are going to do is manage your budget. They are not going to help you invest or grow your wealth. Once you are out of the big black hole, you should think about advancing your financial position, not just ‘getting by’.
Do you have any other options?
There are sooooo many free tools available to you to budget correctly and automate your finances. If you spend a couple of hours working out your budget and setting up systems to automate bills and debts, you could have a worry free, automated system without paying for it. This would mean that you could get ahead sooner, and actually think about how to ‘get rich’ instead of thinking about how to pay down your debt.
I’ll say it again: They are not doing anything tricky or technical, they are managing your budget and taking away any willpower issues that you have.
If you want to automate your finances, here are a couple of tools you should have a look at:
- If you want to figure out where your money is going, then moneysmart.gov.au/tools-and-resources/calculators-and-tools/budget-planner is a good and simple place to start.
- Want something a little more technical where you can enter your details about your individual debts? Mint.com is highly regarded as one of the best online management tools for you finance. It pulls all of your financial accounts into one place, and enables you to set a budget, track your goals and monitor everything in the one place. It’s also free and has a mobile app available so you can check things on the go.
- You can personally automate the majority of your finances by setting up direct debits through your bank accounts to pay ongoing bills. These can be set up online and are easily changed when needed. You can automate your major bills, savings and ongoing expenses so that you can rest easy knowing these will be paid and that the money left in your bank account can be used for everyday living and fun spending money.
- The Salvation Army have a service called Moneycare. It is a free and confidential financial counseling service for people facing financially hard times and who may need some extra help. Whilst they won’t do the same job as a budget specialist, then can help you with working out your budget, organising credit and dealing with the debt that you have.
If you truly have a problem with willpower, then this could be an option for you. Don’t agree to a debt settlement, pay off your debt and learn how to manage it yourself while you are there. Aim to learn some skills and then get out.
If you know that you can rein in your spending with the above tools and create your own budget, then don’t spend the money. They aren’t doing any amazing secret trick, they just write a budget, pay your bills, and don’t give you access to the money so that you can’t overspend. I believe that budgeting is a life skill that is needed when you earn and spend money and you owe it to yourself to try and learn the basics of how to manage your own finances.
– This post is from our resident senior financial planner, Cara Brett. Check out her details in our about us page.