The wallet challenge – savings and budget checklist
Budgeting and savings might sound very basic, but many people find it difficult to get these fundamentals right, or don’t have these in place at all. Here are some tips to help you get started, and on the right track to building your personal wealth.
Have a plan
If you are planning to go anywhere, you will need to know your starting point and destination, otherwise you’ll just be going around in circles. Growing your wealth is no different.
Where do you want to get to? What are your goals? These answers will vary according to your age and personal circumstances. For example, do you want to save for a wedding, first home or retirement? Once you know your destination, you can start drawing up a roadmap or plan to get you there.
Learn to budget
ln order to have more money to save or invest towards your goals, you need to live within your means and avoid unnecessary debt.
This means learning how to budget – that is, better understanding how you are spending your money and not spending unnecessarily or more than you can afford. It’s a good idea to get into the habit of regularly checking your bank statements.
To do better understand your spending habits and to put a budget in place, you need to compare a period of, say, three months of what money comes in (all your income after taxes) against what goes out (all your expenses).
Once you’ve worked this out, create a budget or a plan on how you will spend in the future. And stick to it!
Be smarter about your costs
When creating your budget, you would be wise to work out ways to cut your costs and reduce unnecessary spending.
For example, when did you last review whether you are paying too much for your internet plan, phone, utilities and especially your home loan?
The new financial year is a good time to go through your all expenses and to check whether you can negotiate a better deal from your supplier or its competitors.
Some helpful cost cutting questions to ask yourself include:
- Are there any regular payments you should cancel – for example, on that rarely used gym membership or cable TV package?
- Are there any cuts you can make that won’t make affect your lifestyle too much – for example, BYO instead of ordering wine in restaurants?
- Could you shop more cost efficiently, such as by buying in bulk, shopping online, waiting for the sales to start and curbing impulse purchases? Your shopping habits can also be improved by writing a list before you go to the supermarket and then sticking to it.
- How energy and water efficient is your home and what can you do to improve on this?
- What money-saving changes could improve your health and lifestyle – for example, cycling to work instead of driving, or growing your own vegetables instead of paying for organics.
- Are you able to bring your lunch to work, and make your own coffee instead of buying these each day?
Become more disciplined
Saving what’s left over each month will help you achieve your goals faster, but this requires a disciplined approach. For example, each month after you have been paid you should schedule a regular payment into a savings account – or even an investment, such as a managed fund – so that you’re not tempted to spend any available money. Reminding yourself of what you are saving for could also motivate you stay on track. Consider withdrawing your spending money at the start of your pay period, locking away your cards to ensure you don’t overspend. If you really want something then it will force you to take more time to consider it rather than buying it on impulse.
Remember to keep some money aside for emergencies and rainy days.
Better manage your debts
If you continue to make minimum repayments on your debt, for example on your credit card, you’ll just get deeper into debt. So it’s important to find smarter ways of dealing with your debt.
Making regular, fixed payments will help keep your debts from spiralling out of control. And paying off your debts faster by making extra repayments or paying more often will help you get rid of them faster.
If you have multiple debts, such as different credit cards, loans and a mortgage, consider consolidating them. This means rolling them all into one loan, such as a mortgage or personal loan, which has the lowest interest rate.
For more tips on how to improve your personal wealth, talk to a CERTIFIED FINANCIAL PLANNER® professional.
Online source: Produced by The Financial Financial Planning Association of Australia and published on 30 August 2017. Original article.