If you’re wondering where all your money goes each month – stop! Losing control of your finances is easier than ever thanks to spending online, subscriptions every which way, and buy now – pay later services like AfterPay or ZipMoney. But you can wrangle back your personal finances into something more manageable – here are five tips for managing your finances more effectively.
What are your goals?
Every goal you make should be SMART – Specific, Measurable, Achievable, Relevant, and Time-Bound. Instead of “wishing I had more money” – you need to get specific (how much money?) and measure it against past spending. It also needs to be achievable – putting “half” your income away isn’t feasible.
Goals need to feel relevant to your current needs – are you saving for a holiday? A home? Something else? You should also have mini-goals along the way with time limits. If you’re trying to save $1,000 – perhaps you’ll give yourself three months to get there. Then that can be part of a larger goal and so on.
Set a budget
Your budget is one of the biggest tools that will help you reach those SMART money goals. It allows you to create a spending plan in terms of your projected income.
You can make your budget as specific or as high-level as you like (accounting for every dollar or just categories of spending, for example. It’s really about whatever helps you reach your goal of spending less than you earn and paying off debts.
A budget will also help you decide how to spend your money over the coming months and years. It helps you make better, long-term decisions about money.
Pay yourself first and the Oh Crap fund
You can secure your success if you Pay Yourself First (PYF) and have an “Oh Crap” Fund (OCP.) The PYF principle is setting aside 10% as the top-level item in your new budget. This can go towards saving, paying down debt, or investing for retirement. Think of it as your “Future you” fund.
You should also have an OCP that has about one month’s worth of living expenses stashed away in case you fall ill or the unexpected happens (we didn’t see 2020 coming, did we!) This should also be another line item in your budget.
Consolidate your debts
If you rack up heaps of spending on your credit cards, your finances are likely “dying by a thousand cuts” of accumulated interest. Financial expert and Savvy Managing Director Bill Tsouvalas says taking out a lower-interest personal loan to consolidate your debts is one way to reverse out of the debt spiral.
“A personal loan is always going to be lower in interest than chipping away at your credit cards at the minimum repayment,” he says. “Paying them off in one go by getting a personal loan can save you thousands in potential interest and that is a SMART goal too – every payment you make gets you closer to a debt free life.”
Get financial advice
According to survey by Savvy last year around Financial Literacy, 84% of those surveyed said they’d never seen a financial adviser. “A good financial adviser is worth their weight in gold,” Tsouvalas says. “Getting up to speed on finances and money will help you understand why some of this short-term pain will give way to long term gain. Having a financial adviser in your corner is like having a good team coach – reminding you can do it with a bit of knowhow and restraint!”
Bill Tsouvalas is the founder and CEO of Savvy, one of Australia’s leading financial institutions. Established in 2010, Bill turned Savvy into one of BRW’s fastest growing companies in 2015. He frequently shares his knowledge and ideas on finance, mortgage, money and investment in the media.
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