Being a good budgeter has some brilliant advantages. However it's not all flowers and sunshine. One of my readers contacted me (let's call her Tania, not her real name). She had just started budgeting and she was kicking some real goals to help her cut down on debt.

Tania wanted to go on a round the world holiday before her 30th birthday. As she put it, before she "got too old". She was looking at me to give her the green light to go and get a personal loan to pay for this $20,800 holiday but she had come knocking on the wrong door. All the reasons she gave me as to why she needed this loan just did not affect my answer of "no".

There were reasons like:

• "All my friends are taking a loan to go."

• "There is no way I could save that amount of money."

• "I can easily afford the monthly repayments."

Sorry Tania, but you picked the wrong budgeting guy if you were looking for an approval on this purchase. In the end I said "let me run through three different scenarios for you to take a holiday, and then you can pick the best one".

And did I mention that Tania had a home loan? Oh yes, she is 25 and has responsibilities in Australia. So it's not like she is 18 and living with Mum and Dad. There are bills to be paid. However even with all her responsibilities and bills, she still could stretch her budget to save money or to pay back the personal loan for her holiday.

Tania had around $250,000 on her home loan over 25 years at an interest rate of 6.50%. She is paying $1,688 a month.

In scenario one she could take out the personal loan for $20,800 over four years (as she wants me to approve), whiz off overseas for her holiday and be back whithin less than 6 weeks. She would have to pay $579 a month back over this four year period at 15% interest. Over the course of four years she would have to pay back a total of $27,780 for her $20,800 holiday.

In scenario two she could start putting away $433 a month in a savings account at 5% interest. Again this would be for four years. This will get her in 4 years to $20,800.

In scenario three she could increase her monthly home loan repayments by $433 a month to $2,121 for 4 years. Then at the end of this four year period she could take out $20,800 from her loan and take the vacation.

Ok let's skip forward in time to see which scenario has done better over the course of four years.

In scenario one, Tania has got her wish and taken out the personal loan. But now she owes $20,800 over the next four years, and don't forget about the interest. Once she paid for her total holiday, this has cost her $27,786. But because all her spare cash has been going to pay off the personal loan she has only been able to make minimum repayments on the home loan. And even after four years of minimum repayments she still owes $229,557 on her flat.

In scenario two, Tania has been diligently saving money for her holiday. Now she is ready to go and instead of only having $20,800 saved, she now has $22,955 due to getting $2,155 in interest from the bank. But her home loan balance is still $229,557 as she has still been paying minimum payments.

In scenario three, Tania has been putting her money into her home loan. Just by putting this $433 into her home loan Tania has saved herself $3,433 over four years in total interest costs. This is money she will not have to pay going forward. Her home loan now, prior to her $20,800 withdrawal is $205,324. But even after the withdrawal it is $226,124. That's a total of $3,433 less than in scenarios one and two.

Scenario three has won in regards to dollars spent. Scenario two is better than scenario one by $9,141 but scenario three is better than scenario one by $10,419.

Now let me say something at this point. Had Tania seen all three scenarios and believed it was still worth it to pay at least $9,141 more to have the privilege of the holiday earlier rather than later, she has nothing to look forward to over the next four years. The excitement of a holiday wears off pretty quickly once you get back. She would come home to an expensive debt and the prospect of not going overseas for quite a while.

Also another point to make about scenario one is that at this stage Tania can afford the personal loan payments each month. However what about if two years after getting back, something happens where she gets unexpected bills? Or what if she is hit with an illness meaning she cannot work? All of a sudden she has a monthly payment on top of her home loan which is not voluntary, it's mandatory. She has left herself little breathing space in case something bad happens. While in scenarios two and three she is only making extra repayments on her home loan as a voluntary payment, if times get tough she can halt this payment until she can work out what to do.

But this is not where it ends. Due to the fact in scenario three Tania paid extra off her home loan and saved interest of $3,433, even if Tania in this scenario goes back to minimum home loan payments, would you believe she will still save one year and one month off the total of her 25 year home loan repayments? Plus an additional $16,301 of interest over the next 25 years.

Let's hit the fast forward button one more time to the 25 year mark, or the last day of Tania's home loan.

Scenario two is still only $9,141 better off than scenario one.

Scenario three is $26,720 better off than scenario one and has paid off the home loan one year and one month ago, all because she was able to take some money off of her home loan at the four-year period. Now it was not much money compared to the other scenarios but over a long time with interest charges, it really adds up.

I'm glad to say at this point that Tania is happily putting money away in her home loan for a future holiday. After seeing all three scenarios she quite correctly believed that an extra fee of $26,720 over 25 years was far too excessive to pay so she could have her holiday just four years earlier. Plus she would also risk the possibility of being struck down with some bad financial luck in the next four years where she might put her house at risk as all her money is already spoken for.

Short term decisions like what Tania wanted to make do have very real and long term consequences.

Let me dispel a myth! Some people will just plain tell you they are no good with their money. As quickly as they can earn it, their money seems to just disappear out of their bank account. In their mind they have told themself so many times: "I'm just not good with money!" They have actually started to believe it or they believe they were born this way.

Let me give you an exercise to show you what I mean. Below are seven options. Read from one to seven and place a tick next to the things you could do.

1. Be the Head Engineer building the rocket for the Mars Space Mission.

2. Perform complicated brain surgery on a patient.

3. Work as the Chief Financial Officer for a Fortune 500 company.

4. Come up with a nationwide advertising campaign for a new soft drink.

5. Own and run a successful small business.

6. Go to the supermarket with a list and get what is on the list.

7. Pump petrol.

Ok if you have ticked any of the above seven scenarios you have all the IQ you need to be good with your money. So right away you can see that being good with your money takes no more IQ or brain power than pumping petrol.

Where you poor money managers need help is with your willpower and motivation. You need to be ready, willing and able to open your mind up to budgeting if it's going to work. Believe me, I have come across some extremely professional and successful people who just can't seem to achieve a good home budget. And I have come about some people who are working in non-skilled work who can budget within an inch of their life. If you tell yourself you're bad with money, over a long period of time you will start believing it.

Tim and Elaine are extremely lucky and have paid off their house at the young age of 30. They have $500 a week extra to save. They arrange a bank account with one of the four banks and start putting it in there at 4% interest a year.

Scott and Tammy are in the same exact position. However they find a big bank which is willing to give them 5% interest a year. Surley you'd think this additional 1% will not add up to a lot over the next 30 years until retirement.

At the 30 year mark Tim and Elaine have managed to save $1,513,717; a nice sum indeed. However Scott and Tammy have saved $1,817,756. Quite a bit more! This is a total difference of $304,039.

While both couples have worked just as hard and saved the same amount, the end total is very, very different. And Scott and Tammy's extra research has really paid off for them long term.

Can you see why banks fight to give you as little interest as possible? Each percentage (or even quarter percentage) less interest is more money in their pockets and less in ours.

When setting up a savings account, term deposit or superannuation account, you need to make sure you are getting the best return on your saved dollars. Of course this also works in reverse. If you have a home loan, personal loan, credit card or car loan you need the lowest amount of interest possible. Do your research, because in a very true way the desisions you make now will have a big impact when you need the money.

Terry has just bought a house for $500,000 over 30 years at an interest rate of 7%. Of course he is extremely excited to own it and he is happy it's his. However he possibly purchased a too-expensive house. Terry has thought of everywhere he can to save money to just pay off the minimum repayments. He does all the things a budgeting extraordinaire would do. But after paying all his bills and the home loan he is left with only $50 to his name each week for entertainment.

Terry understands that at this rate it is going to take the full 30 years to pay the home loan to zero. However there is one area he hasn't thought about. Terry is a sucker for takeaway lunches and he spends $10 each work day on them. This equals $50 a week or $2,600 a year. Terry thinks it's time to bite the bullet. So he starts making his lunches at home, spending $3 a day on average. Each week Terry is saving $35. Of course he adds this $35 to his home loan.

Surley he thinks this small change will not add up to a lot over the 30 years. But would you believe that just by adding this $35 a week – or $140 a month – for 30 years, he will save $100,166 in interest? Plus, more importantly he will cut down his home loan by three years and seven months which equates to over 10% of the time off.

This is great. But there is something we are missing here. Each year the cafe prices for 30 years go up by 3%, the price of inflation. And also due to inflation, Terry's homemade lunch goes up 3% per year.

So as we head into the second year, had he purchased lunch, it would have cost $10.30. His homemade sandwiches are now costing Terry $3.09. So Terry is actually saving $7.21 each day, or $36.05 a week, or $144.20 a month. He now puts this extra money into his home loan for the second year. Remember Terry's debt is not affected by inflation.

Each year his cafe meal prices go up, and his sandwiches go up. Terry works out the difference and adds the new amount to his home loan, which of course is going down. Would you believe that by doing this, Terry, instead of saving $100,166 over the course of the loan, actually saves $118,962, an extra $18,796! Wow, not bad at all. Plus he saves an extra one year and one month in time until the home loan reaches a zero dollar balance.

But here is where things get really interesting. In both scenarios Terry is out of debt with his home loan prior to the thirty year mark. So he can start saving his home loan amount plus his extra payments. Let's see how this plays out to the thirty year mark.

Scenario One: Terry continued to purchase his takeaway lunches. It takes him the full 30 years to own his home. He has saved nothing.

Scenario Two: Terry adds the extra $140 a month to his home loan. He pays it off in year 26 and 5 months. Now he starts adding the home loan payment and extra $140 to his savings account to the thirty year mark. At the 30 year mark he not only owns his home outright, but he has also saved $149,038.

Scenario Three: Terry adds the extra $140 a month to his home loan. However he increases this $140 each year by 3%. He pays it off in year 25 and 4 months. Now, as in Scenario Two, he adds his home loan payments to a savings account until the 30 year mark. But he also keeps adding the extra repayments, increasing at 3% per year. He has saved a total of $203,696.

Can you see how small daily savings can add up to big longterm savings? Terry found an extra $7 each week day. Imagine if he could also find another $4 or $5 a day from other parts in his budget. He would be in a even better position.