It’s Spring – a time when we all start getting on with jobs around the home that have remained untouched all winter. You know what I’m talking about : washing the windows, cleaning the barbeque, clearing out the garage (and the wardrobe!) and even freshening up the paint.
Everyone in the animal kingdom does it. Birds build nests, bears clear the hide and humans place old BBQs and antique TVs and computers on the sidewalk for council cleanup collection.
So it makes sense that it’s also a great time to Spring clean your finances.
Getting on top of your money matters more in Spring because it takes away stress as we head into the most expensive months of the year. I’m talking about Christmas and the Summer holidays.
They call it the silly season for a reason. It’s the time we go silly with our credit cards.
So here at MoneyTalk we’re taking out the broom. And we think you should join us. Here’s what to do:
First step: Assess the mess
Work out your current debts and how much money is coming in (cash flows).
Look grim? This is often the hardest part. Like an overgrown backyard, you’re not sure where start, right. But even though it can be unpleasant, roll up your sleeves and get to it.
Let’s start with the debt. Write down the interest rates, and monthly amount due for each one. This should include all of your credit cards, personal loans and other debts. You should also make note of any annual fees.
You don’t have to include your mortgage but it may be worthwhile checking to see if you’re paying over the odds as you might be able to get a better deal.
Second step: Is the mess getting worse?
Write down your after tax income and subtract all of the absolutely essential expenses. Note the word absolutely, online shoppers!
Rent or mortgage payments, childcare, insurance, utilities, transport and groceries. Be brutally honest. But don’t be so hard on yourself that you don’t have some fun. Leave a little discretionary spending.
Try doing this in the third person, as if it’s about someone else. It sometimes helps and you can be a little more ruthless!
The amount you have left can be used to pay off your debt. If the amount is too small, you’ll have to look for ways to reduce your spending. For example, try temporarily switching off your cable TV subscription, change to a cheaper mobile phone plan and catch public transport or carpool.
The more you can pay towards your debts, the less interest you’ll be charged, and the sooner you’ll be debt free.
But make it realistic. You have to be able to stick to the plan.
Third step: Start shovelling the mess our the door
This is the good part. Start paying off the debt with the highest interest rate first. You’ll find each of your debts attract a different interest rate. Notoriously, credit cards and store charge cards are the worst.
It’s important you don’t add any extra charges to these accounts. If you’re feeling reckless, cut up the card, and focus on paying these off first. Remember interest is the arch-nemesis of debt reduction, so reducing balances on high interest debts is the fastest way to become debt free.
Forth step: Try talking your debt down
You may be able to lower your interest rates or negotiate a reduced settlement on some debts by speaking with the customer service department. It is especially easy to negotiate terms of a debt that has already been “charged off” (dismissed) by the creditor and is in collections already. Also, think about moving existing credit card debt to a personal loan or 0% balance transfer card. BUT don’t increase the balance….cut up any new card they issue you!
Fifth and final step: You’re on the way to clearing the mess, so don’t below it now
Do your best to meet your repayment goals each month. You can set up automatic repayments from your salary, so you won’t be tempted.
At Christmas, when we all tend to indulge, be creative in the ways to enjoy yourself without letting yourself spend up big. You know you can do it; you did it when you were a teenager.
Try talking to friends and family now and come up with ways to find cheaper ways to celebrate rather than just resorting to giving your credit card a work out. Its just takes discipline and honesty.
And remember how good you’re going to feel when the worry of all that debt get’s lifted.
You’ll have made a major achievement and can celebrate the real meaning of Christmas without being an Ebenizer Scrouge!
We’re “indebted” to Toowoomba accountants Robertson Scannell for this modern take on a Christmas carol:
‘Twas the week before Christmas, the cash registers ring
Shop till you drop, don’t miss a thing,
Buying up big, it’s not very hard
If you don’t have the cash, just pull out the card.
We know a reformed you won’t be tempted to do any such thing!