The ten things you need to be doing to have the perfect personal finance setup
The feeling of getting your finances in order is second to none. You really can’t beat knowing that you are working to save money, pay off debt and grow your wealth. It gives you a sense of purpose in the world knowing that you are ticking all the boxes financially.
Goals and strategies are what propel our personal finances forward, though the trick is to make a check list to ensure all aspects of your personal finances are looked after.
Here is some food for thought on the ten steps, habits or to-do’s that will improve your money situation. I suggest you sit down and spend 30 minutes taking action with each step. Remember, you need to start today, not tomorrow and simply ‘get on with it’.
1. Automatically save money
Get your employer to pay a portion of your pay directly onto your mortgage (if you use a redraw or offset savings strategy) or alternatively get it paid directly into a separate high interest bank account. Failing these two options; setup a debit from internet banking to save a set amount each time you get paid. Automate, forget and save money.
I’ve done this in the past with small amounts from each pay cheque; over the course of 6 months the savings really came in handy when I had an unexpected bill arise.
2. Use the debt snowball method to kill credit cards
If you haven’t familiarized yourself with the debt snowball method, you need to. Anyone who has multiple credit cards, or personal loans, needs to consider this debt reduction strategy. The goal is to list your debts from smallest to largest and aim to repay the smallest debt first. This motivates and closes credit lines faster; perfect for people who don’t trust themselves to not use credit.
Once you repay a card, kill it. Cancel it, cut it up and vow to never get into that much debt again.
3. Live frugally
Spend less than you earn. Stop accounting for your money before you even get paid. These are rules to live by. Look to buy brands, products and items that are not the most expensive. Don’t cut corners; simply become the best you can possibly be at hunting down a bargain and screwing down the best possible price for an item.
Every dollar you spend you will never get back. Use your money for the things you really want; not for over priced brands and items you dont need.
4. Cull your expenses every 3 months
Every three months you need to organize two nights to sit down with your partner, go through all of your spending and look for ways to reduce it. This might mean reducing your insurance or changing providers, or perhaps questioning whether you really need to buy all those magazines or iTunes purchases. For me, I have culled the likes of lunches at work, using taxis and nights out with friends on the grog.
Get yourself motivated by saying ‘I will cull 3 things from my expenses tonight’ and making a night of it with your friends or family.
5. Control impulse purchases
Stop believing you need to spend money in order to have a good time. Impulse purchases are proven to lower happiness over the longer term. Focus instead on having a great experience with great people instead of acquiring gadgets and gizmos. If you struggle to control impulse purchases, try using cash only for a month. It is harder to part with cold hard cash than a simple tap or swipe of the credit card.
6. Invest every year without fail
Whether you have $50, $500, $5,000 or $50,000 to invest – invest every year in some way without fail. Whether it be building up a term deposit, a share portfolio or managed fund – be sure to invest a set amount of money every year and focus on the long term.
So many people think to themselves ‘I don’t have enough money to invest’ as they are consumed in the day to day. However even $500 a year is better than nothing and over a lifetime can build a pretty strong share portfolio.
7. Don’t use a credit card
Stop using credit; it doesn’t actually put you forward. Whether you realise it or not, until you stop using credit cards, you will always have the temptation or ability to spend money that isn’t yours. If you must have a credit card, opt for one that allows for a good balance transfer and an ongoing low interest rate.
For those who have previously used a credit card and now paying the consequences, consider a balance transfer credit card to get some rest from the interest charges.
8. Separate your bank accounts: expenses from everyday spending
Have multiple accounts; one for your debits and expenses and one for your everyday spending and groceries. All too often we have a bank account, filled with money, that makes us feel rich when in reality it is all accounted for. Create an expenses account that doesn’t get touched, it simply receives a deposit each pay day to cover bills and outgoings. Then open another account for groceries, petrol and everyday spending.
Accounts like the ING Orange Everyday Account are good as they are not part of the big banks and likely separate to your everyday banking. You should never use your grocery and petrol account anything but, it simply helps you to budget.
9. You need a cash stash/war chest
If you lost your job tomorrow, could you continue to repay your mortgage? Think about creating a savings account, better known as a war chest or cash stash to house your savings and enough money to cover the bills should you lose your job. It’s amazing how much better at night you will sleep knowing that if the worst occurs, you still have money to get by.
I often refer to this cash stash as a war chest. That is because in times of yesteryear, people like Napolean would have a ‘war chest’ of money that could be used to finance war. I want every saver to have a war chest, ready for opportunities (not war) that may arise. It might be unexpected bills or a business idea that you want to get off the ground; don’t limit your chances of success simply because you aren’t prepared financially.
10. Get all of the fiddly little admin things done
Things like combining super accounts, creating a Will, sorting out life insurance. They are important aspects of your finances yet are the most boring. Take a week to set yourself the goal to get ALL OF THEM complete. This means you can get it done, out of sight and out of mind.
The important ones as mentioned above are having one super account, a will, adequate insurance (life, home, car), a system to pay bills on time, a plan to automate your savings, a debt reduction strategy and more.