It’s not ideal but the current debt crisis is creating such uncertainty worldwide that almost everyone including Governments are looking closely at their spending and in particular cleaning out any wastage. From the US government to most individuals there is some detailed analysis and questioning going on.

In a report in the US published by the General Accountability Office (GAO) in March 2011 entitled ‘Opportunities to reduce potential duplication in government programs, save tax dollars and enhance revenue’ found for example that:

• The US department of Agriculture and Food and Drug Administration are responsible for food safety – but so are 15 different agencies.
• 31 Entities within the department of defense are charged with responding to war fighter urgent needs.
• 18 programs across the government are devoted to economic development.
• 10 agencies across the government and 82 programs deal with teacher effectiveness.

A very interesting finding was that the GAO generates $80 of savings for the government for every $1 it spends. That’s a pretty remarkable return for dollars spent.
Before we criticize the US Government’s inefficiency too much, at least they’re doing the exercise. They are going to have no choice other than to become a lot more efficient with their expenditure and that will probably result in a more optimal outcome.

It makes me think about the efficiency and wastage at a domestic level in Australia. For example, right now there appears to be no shortage of water. However, we know that Australia has historically been a dry continent and is likely to be even more so in the future. But in the short term, who cares – right? Who even knows the price of water? So for a scarce resource, how is it that we don’t know the price? We all know the price of petrol and milk but not water? You can survive without petrol and milk, but not without water!

So it would be a very good time to take a long hard look at our own domestic level of efficiency. With respect to our financial situation, here are some ideas of where to start:

• How much insurance is really required and do you have the optimal amount? Are you paying the optimal premium and in the most appropriate structure?
• What costs are you paying on you superannuation and investment funds?
• What return are you getting for the risk you are taking?
• What banking and debt charges are being levied and are there alternatives?

It’s not a difficult exercise but may take some time. Start with determining what is most important to you. Knowing this will be a very good filter.

Next track your cash flow as it occurs. An awareness of where your dollars are going will be 90% of the solution. If you knew that you were paying $2,000 per year more on your mortgage insurance or superannuation than you needed to, or that you are spending much more than you thought on clothes, coffees or whatever, surely that would influence your behaviour. At least you would be able to make a conscious choice.

If this makes sense to you and you would like to do a full audit on your finances, contact Melissa Oliver at SentinelWealth and ask for a WealthWatch audit. To have your cash flow tracked for a year, ask for “Cash Tracker”.

Justin Hooper
Managing Director & Financial Strategist
SentinelWealth