UNDERSTANDING MONEY
Understanding money can help you and your family meet your goals and get the most out of life. Taking a few simple steps to manage your money better can make a real difference to the control you have over your future and the choices available to you.
Understanding money means understanding how much money you have and where it goes. It means being in a position to make the most of what you’ve got. And it means protecting what’s yours.
Conscious Spending
I got my first job at 15 working in my local supermarket. Each Wednesday, on pay day, I would be handed an envelope with cash in it. I was able to visually allocate funds and was conscious of every dollar I spent and when the money was running low. With the introduction of online banking and now Paypass, I have noticed that money has lost some of its intrinsic value. I can transfer $1,000 from one account to another without being completely conscious about the size of that transaction.
Setting up a budget is not about restricting what you spend your money on, it is about making a conscious decision about how much you are going to spend on certain items, agreeing on this with your partner (if applicable) and sticking to your plan.
Mindset first
Many people find it hard to save for the sake of saving. This is why it is important to set SMART goals:
Saving regularly is as much about forming a habit as it is about having money available when you need it. Having a good financial mindset is half of the battle. I have found that about 80% of financial planning is psychological. Here are some simple examples and tips to help you set your financial mindset:
Write your goals down and put them up somewhere you can see them every day. If you are a highly visual person, build a vision board that is directly linked to your goals.
Work out exactly what is required to achieve that goal. For example: You want to take a family holiday in 3 years and you need $7,000. You need to save $90 per fortnight (26*3 = 78, $7,000/78 = $89.74) to have $7,000 saved in 3 years. $7,000 may feel like a lot of money, but $90 a fortnight or $45 per week seems very manageable.
Consider saving this money in a separate account, ideally one you can give a specific name, ie “Family Holiday”. My husband and I know that we are better off putting our savings in to our mortgage. Doing so will save us around 4% per annum in interest, however, we have built a financial mindset that we do not want to redraw on our mortgage, so we contribute money to a separate bank account, which only earns around 1.5% per annum and we call this our “Holiday” account. We have worked out we lose around $100 per annum, but we feel it is worth the sacrifice to maintain the mindset.
Bucket Strategy
A bucket strategy is an addition to your budget. It makes it easier to manage your bills and future expenses. In this strategy, you need to add up your bills for 1 year and divide into the frequency of your salary payments. Transfer the same amount in to your “Bills” account each pay, this ensures that you have money available when your bills come through and you should never experience lumpy household expenses again.
This strategy also enables you to clearly identify how much ‘surplus’ you have left to allocate to additional debt repayments or to direct to your goals/savings account.
Avoid Credit
Establishing a good spending and saving plan, (including strategies like the bucket strategy above) and having emergency funds should ensure that you avoid using credit cards or loans to fund your day to day lifestyle spending or your occasional lump sum spending (such as holidays).However if you have built up some debt (aside from your home loan), take a look at your loans and credit cards and see whether you can consolidate them and/or adjust your spending habits.
Investing
Look for opportunities to make your money work harder by investing, and check if you’re contributing enough to your superannuation.
Protection
Think about strategies for protecting your money, such as making sure that you have the right insurance.
Seek help if you need it
Shop around and get information and advice if you’re not sure about managing your money or if you need help.
Next Steps: