Australian household debt less than expected

Australian household debt less than expected

16 June 2009

Latest figures of Australian household debt have eased fears that many people are living well beyond their means as figures fall below expert's predictions. The median Australian household debt currently equals about 8 per cent of total household assets, with the majority of household debt actually belonging to people living within a higher earnings bracket, meaning they generally have a greater capability to repay any debts and personal loans relatively quickly. Furthermore, figures concluded that fewer than 10 per cent of Australian households had excessive debt in 2006, before the financial crisis hit.

Of course, while these figures are encouraging experts in the finance and accounting industry warn that as the global financial situations continues to suffer, household debt will rise if unemployment increases significantly. Additionally, many people are now applying for a personal loan with a high number of younger Australians also applying for the First Home Buyers Grant which can be an issue if individuals cannot afford repayments or interest rate rises.

In the face of the financial crisis however, there has been a surge in new budgeting techniques designed to take the pain out of saving whilst also being able to allow for daily living expenses. One of the most popular on the market which has found support with US financial and budgeting experts is the "Bucket Budgeting" theory.

Bucket budgeting, or the three buckets budget approach, is the idea of the individual's finances being broken down into three separate bank accounts, aka buckets, with different purposes. These buckets are generally a long term savings account, a fixed expenses account including mortgages and any personal loan, and daily expenses such as petrol allowances and groceries while also allowing for unexpected expenses.

This approach is ideal for people with little money management skills as, once established, will not take any time to maintain while meeting any savings or personal loan repayments.

To establish the bucket budgeting system, it is advised that people first decide how much they will need for weekly expenses, what debts and bills have to be paid when and how much they can afford to put away.

The majority of the financial and accounting industry suggests that people maintain some form of saving or budgeting system which will allow them to manage their finances and repay any debts as quickly as possible.

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