- Posted 31 Mar
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Understanding your financial position is essential to making a start changing your financial situation. Everyone can make a difference to their finances so using the old Confucian proverb “every journey begins with the first step”, it’s time to begin.
1. Track you spending
Understanding what you spend and where you spend it. Do not take a judgemental position on your spending just understand what you spend and where you spend it. Track your spending over a month to see exactly where your money goes. You’ll be surprised where your money goes and it will give you a good idea of where you can make changes.
Given so much spending takes place via credit and debit cards it has never been easier to track your spending using an online medium. Where you use cash track your spending use a notebook.
Don’t fudge it, track your spending and importantly understand where the money goes.
So you’ve now got a good understanding of where you spend your money. That’s great. Use the information to set yourself a budget. Most people don’t set a budget. Many more keep a loose budget in their heads. A loose budget has to be better than no budget. But have a go at setting yourself a formal budget and importantly, sticking to it.
A budget is a great idea for so many reasons. It allows you to understand where to spend or save your money. If you have a mortgage being able to squirrel away a few extra dollars to save on interest will go a long way.
3. Call for Tenders
Large companies do this all the time. There is no reason why you can’t do this in your own way. Everything is negotiable, well almost everything. Mortgage rates, power, gas, telephone, internet are all on the table to be tendered. You should be regularly checking on rates and getting a better deal – too hard? Wait until you read this! Let’s say you can get 0.20% (20 bps) off your mortgage. Let’s say your mortgage is worth $300,000, that’s a $600.00 per annum (tax free) pay rise I‘ve just given you. $12.00 a week not much to you? What about the savings that mortgage brokers can also provide in the form of savings off fees and charges, these will add up to significant sums. You’ll be surprised how much better you can do just having a friendly chat with your lender.
Insurance is just the same as banking. Insurance companies rely on you not checking premiums every year. It’s called inertia. They expect you just to pay. Well don’t, go and get yourself a better deal online. Odds are almost certain you’ll save money.
Similarly checking your power and gas rates will do a lot. There are plenty of sites out there that give you information on what power and gas rates are. Spend 15 minutes and you’ll be surprised at what you can save.
Better still, armed with this information call you existing provider and get them to match the deal. Most will. It costs less to keep a customer than to get a new one.
4. Optimise what you’ve got.
We all have too much of too many things. The same is true for financial needs and wants. If you’ve got more than one superannuation account, combine them into one, you’ll save on fees and charges as a minimum.
Too many credit cards? Do yourself a favour and chop them up. Make sure you tell the bank you have done so, otherwise they’ll happily keep charging you annual fees. If you have debt on a credit card and you are paying interest on it, transfer it to a lower interest card or better still take advantage of a balance transfer deal. Every bank has one and they are only getting better. If you can’t get one for a term greater than 12 months you are not looking hard enough. Once you have the balance transfer deal pay off the debt like mad.
5. Interest is your friend
Some interest is better than no interest, so make sure if you have savings you are getting the best deal. Shop around, the best deals are found on the online high interest accounts. Better still if you have a mortgage pay the money off the debt and take the benefit in the form of interest savings. Alternatively get an offset mortgage and use the savings to offset the balance of the loan. The benefit of this is you receive an effective pre-tax interest rate equivalent to your mortgage rate. Bet you won’t be getting that on your high interest savings account.
6. Emergency Fund
Shit happens. If you don’t have one, start one. Simple as that. Even if you can only put $50.00 in an account every payday, you’ve got to start somewhere. But you need to build up an emergency fund equivalent to three months of wages to cover you in the circumstance that you lose your job, get sick or your fridge blows up. Better still if you have a mortgage you can offset these funds against a mortgage (see above). No matter what start an emergency fund, you’ll need it one day.
7. Spend consciously
This is not a zen slogan, but more like snacking after dinner. Just like you watch what you put in your mouth, watch what you spend your money on. Actively chose to spend money, it’s so easy to spend with debit and credit cards, it just happens. Change the process. Easier said than done, but choose what your money is spent on. Raise the bar for the purchasing decision, add in another hurdle, and make yourself wait five minutes before buying. If the urge has passed don’t buy it.
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