So, here is part three to my (currently) three part series on how to save money and get on top of your budget. Here, I’m going to go through some very specific ideas on things such as how to set up your bank accounts, how to make the best use of your internet banking and how you might want to priorities your payments. It’s not a comprehensive list of everything you can do, but it’s enough to get you started. If it’s too long, I guess I’ll be having a part four!
Visibility – know where you are
I talk a lot about fuel gauges. It’s quite logical when you think of it – planes, trains, cars, space shuttles, computers, phones – everything has an indicator showing you something that you need to know. Step into any CFO’s office, and it’s likely that on their computer will be a financial dashboard showing sales, costs, wages, payables, assets and the like. A CFO needs to be able to read the financial pulse of a company. You are your own, and your family’s CFO. It’s up to you and only you to know where things are at, every minute, every day. There really isn’t any excuse for maxing out a credit card, but it’s easy to see how it can happen.
There are several tools that are available to help you see where your finances are. You can either individually access each bank account regularly to see the balance, check your credit card to see how much you’ve spent, or you can use an online or app based tool that pulls data from your various financial institutions. Some banks will SMS you the account balance on a periodic basis (some even daily). Regardless of which system you use, you’re going to react to the data whether you plan to or not. See that you’re down to your last $478 and you’ve still got a week to go until pay day, you’re going to naturally hold onto the last few dollars.
So, you’ve managed to watch your accounts and you feel that you’re on top of things – check your account balance and you’re pleasantly surprised! There are many moments when good results end in a little celebration. So, what if you spend a few hundred? You’ve deserved it, right? Well, in fact you have. Go forth and spend. However, please be careful. Ever tried cutting out chocolate or alcohol, and when you’ve been really good, just that one piece? Well, there goes a block of Cadbury’s!
Don’t feel rich.
Feeling rich is great – providing you are rich. If you’re not, then we’ve got a bit of a problem. It’s so tempting to think that you can afford that new car, that night out even a nice trip away. If you’ve planned out your budget and have fund put aside, great – go spend them. However, until you’re well on your way to financial independence, until you’ve got a passive income that you can rely upon, while it feels good for a little while, try not to feel too rich, too successful too often. I know it doesn’t sound like much fun, but of the 1,000’s of people that I’ve interviewed as an independent financial planner, one of the biggest mistakes that I’ve seen them make is not fully comprehending the amount work that needs to be done, that they’re not rich yet, that they can’t quite afford that little bit extra right now. If you’ve managed to get a bit of money in your account, make it disappear. Pick a threshold that makes you really comfortable, and make sure that when you get close to it, you transfer the funds out. If you’ve got a home loan, make it a second offset account. If you’re saving into a bank account, get an online savings account. Just put it out of arms reach, and you’ll have a much better chance of keeping it. If it’s appropriate, buy some quality assets. That could means shares, it could mean borrowing money and buying an investment property.
Bit by bit, your assets will build, and bit by bit your wealth will be increasing. Over time, what you were so desperate to achieve, being independently wealthy, will just turn into your reality.
In part 4 (yup, stopping now) I’ll examine how to structure your income, a bit more on banking and home loans.