Most of us work hard to get a job so we can earn the money to give ourselves a good lifestyle… then we neglect to spend a small amount of time managing our spending and saving patterns to ensure we actually achieve that lifestyle.
1. Take control of your finances to achieve your goals without stress.
- Track your day-to-day spending for a month. Pop a notepad in your pocket or download the Australian Government’s TrackMySpend app.
- Get your bills and bank statements together so you can see what you spend annually on utilities, insurance, car expenses etc.
- Do a budget – have a look at this online budget planner tool.
2. Look for leaks
For some of us it’s cash. Money goes into our wallets and we’re never sure where it all goes from there. For others it’s ‘the lure of the never never’ popping small items on our credit card and forgetting them.
But they add up. In a simple example, think of saving $3.50 a day on coffee and $7.50 on lunch three times a week. That adds up to $2,080 a year, or $20,8000 after ten years plus interest of $6,116 to total $26,916. Over the long term it’s even greater: more than $100,000 over the life of a 25 year mortgage! (This assumes 5% p.a. effective interest – see ‘Invest’ below)
There really is truth in the saying – “look after the cents and the dollars will look after themselves.”
3. Save first – money burns holes in our pockets
Set up higher interest online savings accounts (most are fee free)
- One for irregular payments – utilities, insurance, etc
- One for short term savings
….then transfer your targeted savings amounts into the accounts as soon as you get paid.
4. Invest your savings… in the long term, investors expect to double their money every 7 to 10 years
…on average. (Have a look at ‘The Real Secret to Wealth‘)
- mortgage reduction – usually one of the most powerful forms of saving and earning interest is to reduce interest payments (think about your mortgage rate compared with your bank interest rate) by making extra payments on your home loan
- superannuation – think about topping up your super. It remains a tax effective way to save for your retirement.
- shares – in the long term, the risk can be small, but dividend yields can be high and imputation makes them tax effective
- property – particularly with negative gearing, property can be an excellent long term investment.
Involve a friend
Get your partner or a friend involved. It’s more fun and the mutual support will help both of you to persevere.
What are your thoughts?
Do you have money and budgeting issues? Was this information helpful? Is there anything else you’d like to know about budgeting and debt reduction?
Join the conversation — leave a comment below and let us know what you’re thoughts are.