Nicole Pedersen-McKinnonThe question is, can you afford all this?
Your personal financial situation, otherwise known as your budget, basically comprises four elements – your income, fixed costs, discretionary spending and saving. You can look at your pay slips and bank accounts to see how much income you receive after tax each pay period, remembering to add in any that come in cash. And don’t forget, this should grow as you strive to get in control of your finances.
You can also use many strategies to cut your fixed costs and discretionary spending.
Get wise. Using credit to continually spend more than you earn has the greatest potential to sabotage your future. To be a financial success you don’t have to be particularly clued up, but you can’t be clueless either.
What of micropayments, the guilty little pleasures that can inflict seriously big financial pain? I am not suggesting you abstain completely, because this is the stuff that makes life that bit more fun. The key is to figure out what you are spending and how much you can actually afford to spend. Then make this amount – and this amount only – your designated fritter fund.
A good trick is to count down this cash – or virtual cash. If you have an available $40 a fortnight, keep track of what’s left either on a bit of paper or online.
When there’s no more money for incidentals, there’s much you can do to sweeten your days that’s always free. Think picnics in the park, home cinema … and your waistline might also benefit from treat relief.
If you still can’t afford everything you want, you may have to push back the target dates of some goals. Bear in mind, it’s advisable to put at least 50 per cent of your available money towards goals that are going to increase your net worth. That means, if you carry over any credit card debt from month-to-month, have a personal loan or have a mortgage, paying these off should be at the very top of your priority list.
They should be in that order, too, assuming the interest rate is highest on your credit card and lowest on your mortgage. But the decision is yours whether to use your full 50 per cent to pay all your debts off first, then start channelling the freed-up money into super and investments, or whether to – from the beginning – pay down your debt and invest at the same time. The right choice for you will come down to your tolerance for risk.
No one should want money for money’s sake. You should want it for the options and opportunities it brings to secure you and your family the life you dream about.
Surely that’s the motivation to get a handle on your future?