Six simple tips for managing money
Protecting and strengthening our financial wellbeing has become increasingly important with 2021 continuing to throw us curveballs. So we’ve come up with six simple tips you can start putting into practice to make it easier to manage your money.
Read our recent article on why financial wellbeing is so important and ways can you strengthen it?
Pay yourself first
There’s a classic book written in 1926 called The Richest Man in Babylon, that dispenses financial advice through a collection of parables set 4,000 years ago. One of the key themes running through the book is pay yourself first. It’s such a basic principle; and such a valuable one. Use the money you do have in your hand on well considered choices, rather than chasing reward points or spending money you don’t have (credit cards, Afterpay) which can only take you further away from your goals.
The key is to set up an automated structure for your banking that forces you to pay yourself first before you focus on your day-to-day spending. This makes it so much easier for you to stay on top of your money, taking those ‘do I or don’t I?’ decisions out of your hands.
The basic idea is to set up your bank accounts so every payday, money is transferred into separate savings and discretionary spending accounts. We also recommend setting up direct debits are also used for all your essential expenses such as utilities, insurance and rates so everything is accounted and budgeted for every month. Set up correctly, this structure should lead to less worries with cashflow and bad debt, and more savings in your bank account.
Click here for other helpful tips and resources to aid your cashflow and take charge of your finances.
Live on less than you earn
This approach makes our first point about ‘paying yourself first’ a lot easier to carry out. We also know that many have already had to adjust to this way of thinking due to a reduced income or uncertain work situation.
But it also makes common sense – in good times and bad. If you learn to live on less than you earn, you’ll always have money left over after you’ve paid yourself for savings, investments, and reducing debt.
So now is as good a time as any to look at your budget, look at your spending, and see where you can trim off any excess that you can put back into your pocket.
For example, the use of paid subscriptions such as Netflix, Disney, Kayo and Spotify have gone up dramatically during the pandemic. It’s likely you don’t need all of them at once, so think about cutting back or giving yourself a monthly budget. The idea is to monitor what you’re spending on discretionary items to reduce your overall expenses.
Want some more practical ways to save money? See this great article from Ramsey Solutions.
Pay off debt
You’ve probably noticed debt has been mentioned a couple of times already. That’s because the biggest obstacle we all face in managing money is debt. Credit card is generally regarded as “bad debt” because it is used for consumption, rather than the “good debt” used to build wealth or increase your income.
We recommend not using a credit card at all, and definitely don’t recommend using your credit card on general expenses. Credit cards can be a dangerous trap, just like credit card reward points which are a false economy. A good rule of thumb is: If you can afford to pay that expense off your credit card every month, you’re better off using cash in the first place.
We suggest that our clients destroy their credit card. If you don’t feel like you can get the scissors out to your credit card, there are other things you can do to reduce your debt, such as changing over to a 0% balance transfer offer which can save you thousands in interest while you gradually pay down the balance.
Another way of saving thousands in debt is to increase your mortgage repayments. Just a slight increase can significantly reduce the amount of interest you need to pay over the lifetime of your loan.
Minimising your debt gives you:
- greater control over your finances which is incredibly important to your wellbeing
- frees up money for savings and investing
- makes it easier to make life decisions (taking that holiday, investing in that opportunity, leaving that job or retiring).
Choose the right saving method for you
Managing money really comes down to how you think about saving and spending (your behaviour), adopting a method that works for you and one you can stick to.
For some people this might be using an offset account to build up savings. Others might prefer having an account they can’t access online to limit the temptation of withdrawing from it. Or it could be creating an investment portfolio where a monthly amount is automatically deposited so it builds up over time.
What’s most important is determining what your goals are – we suggest looking to ten years, three years, and now – and then plan out the best way to manage your money to achieve those goals. By understanding how you think and act towards money, you’re more likely to stay on track with your plans.
We can help adapt your saving method and financial plan to suit your habits, lifestyle and goals.
Review everything annually
And we mean everything – mortgages, insurances, utilities, telcos, loans.
Banks and other services rely on their clients’ apathy and loyalty. If you don’t check your circumstances every year, you could be missing out on significant savings.
Consider just saving a half a percent on a home loan. On a million dollars, half a percent could amount to thousands of dollars that you’re giving to the bank in extra interest that you could be keeping for yourself.
It doesn’t cost you anything to ask the question, ‘can I get a better deal?’, but it could save you plenty.
We know reviewing your expenses can be painful, but it can be well worth it with potential thousands of dollars out there to be saved, especially if you haven’t checked your circumstances for a while.
Our library includes a host of resources including a Bill Comparison Quick Links Guide and Credit Card/Mortgage Calculators to help you review your expenses.
Be ready for anything
Expect the unexpected is something we’ve all had to become very used to. So make sure in managing your money that you’ve always got some funds set aside in times of crisis or opportunity.
At Tribeca, we advise all our clients to have at least three months salary available if needed, whether that’s a buffer for an emergency, short-term funds for a business or investment, or to know you have added protection to cope with the emotional ride of a fluctuating stock market.
We can set up this structure to make it easier for you to build up these cash reserves, as well as regularly touch base with you to make any changes and help keep you on track.
Please remember we’re here to help, whether that’s helping create a financial plan that works for you, or being there along the way for support or keeping you on track.
Your advisor or any of our Tribeca Tribe are always ready to chat.