Over my 10 years’ experience in the financial services industry and having provided financial advice since 2010 I have had the opportunity to work closely with a variety of families and individuals. Each are unique, but one common trait I have found is those who have built wealth have not necessarily been those who have earnt the most money.
I have observed that as soon as income increases, spending habits increase. Nicer holidays, nicer cars and clothing, more expensive post codes that come with greater debts. Those who become truly financially free and rid themselves of debt are those who make wise decisions with their money.
It’s not about how much you earn, it’s about how much you keep.
Many people I meet with use the credit card for the month, and tap and go with everything they spend. At the end of the month they clear the credit card. The problem with this is that you are not being accountable or tracking your spending. This type or arrangement makes it far too easy to spend a little more here and a little more there. It all adds up at the end of the month.
So how do you make sure you keep more?
Step 1. Understanding your cash flow is the first step.
Knowing exactly what you bring home each week is critical. Then working out how much is leaving. I do this by breaking down spending into two main categories.
- Essential spending; being mortgage/debt repayments, groceries, bills, insurances etc.
- Discretionary spending; being holidays, coffees, restaurants etc.
Once you have worked this out, hopefully there is a surplus. If not, this means you are not living within your means. If that is the case, come in and speak with a financial adviser that can assist with cashflow, NOW! (and just a word of warning, not all financials advisers are created equally. So, they may not be interested if they can’t make a big commission or charge you large fees).
Step 2. Establishing structure.
Once you are clear on what is coming in and what is going out you should then create a banking structure that will separate money used for weekly spending (essential spending), weekly enjoyment (discretionary spending), and two additional accounts to be used for emergencies (when car rego is due or the dog gets sick) and long-term enjoyment (family holidays).
Step 3. Putting into action disciplined spending habits.
Once you have the accounts set up you want to set a limit of what will be put into each of these accounts each week, fortnight or month, depending on how you are paid. Stick to these limits. You may find this hard initially, but with time it will get easier, and in the long run you will be much better for it.
Let us help you create something easy to follow, because it doesn’t have to be complicated! Let me repeat that – it does not have to be complicated!