Want to get your finances organised and have no idea where to start?! You have come to the right place! Read on for ten tips to help get your finances sorted.
1. Work out how much you spend.
Firstly, you will want to work out how much you spend. This works best on either a weekly, fortnightly, or monthly basis. This doesn’t need to be exact, it is just important to have a rough idea of what you are spending. If you have no idea, its worth writing a list of your recurring expenses or even looking through your bank statements. Finding out how much you spend on rent/mortgage, bills, groceries, fun and fuel are probably the main ones, and then adding a bit extra for holidays, shopping etc if you don’t know exact amounts is fine. Why do we need to find out how much we spend? It’s so we can complete the next step!
2. Spend less than what you earn.
Sounds simple, but the best way to do well with money is to spend less than you earn! If you are relying on credit cards to pay your bills, or living pay check to pay check, you won’t be getting ahead financially. If this is you, its definitely time to look at yourself and look at your spending, and turn your situation around. If you cant possibly spend any less, this may also be the time to look at increasing your income.
3. Set up a cash flow plan/budget.
Once you know where your money is going, it is probably time to set up a budget or cash flow plan. This doesn’t need to be super restrictive, however if you aren’t spending less than what you earn, you are going to have to cut some expenses. The quickest ways to cut expenses are most likely through your housing and discretionary spending. Can you find somewhere cheaper to live? Or get a house mate in to help cover rent & bills? Are you eating out or buying your lunch everyday when you could probably meal prep instead? If you are spending a lot on fun & going out, could you find a way to still have a good time with friends while doing something for free? If you are ever going to get ahead financially it will take sacrifices, you just have to find what you are happy to miss out on and what you are not.
4. Set up an emergency fund.
Once you are spending less than what you are earning, you should have surplus money over each week. If you don’t already, you should build an emergency fund. Ideally its best to have at least 3 months of expenses saved for rainy days, however any cash buffer will be beneficial. Having that fund there for when things go wrong means that you won’t need to go into debt for unforeseen expenses and won’t have to stress about mishaps.
5. Pay off debt.
Once you have an emergency fund saved its time to start smashing debt! There are a couple of strategies to paying off debt. The logical strategy is to pay off the debt with the highest interest first, regardless of the size of the debt. Often credit cards have the highest interest, so it makes sense to pay that off first, before paying off a car or personal loan. While this is logical, it isn’t always the best method. The method I prefer is the snowballing method, where you pay off the smallest debt first, regardless of the interest. Mentally, I believe this is a much better strategy as you can get a small win early and it will give you the motivation to continue paying off debt. Regardless, its important to be debt free to really start building any wealth.
(When I say debt, I am excluding a mortgage. Paying off your mortgage as quickly as possible isn’t always the most appropriate strategy and is not included for this reason.)
6. Save for a goal.
Now comes the fun part! If you are debt free and have an emergency fund in place it’s time to save for a goal. This could be for a house deposit, a home loan, or any other goal you are aspiring to. I like creating bank accounts for different goals so I can split my money into them each week and track each goal individually. Everyone is different so do whatever suits you!
7. Donate to charity regularly.
The average worldly income is only approximately $790 a month. For someone working 38 hours a week on minimum wage in Australia, they will earn approximately $770 a week. So an Australian working on minimum wage makes more in one week than what the average is for an entire month. In other words, we are extremely lucky to live in Australia, and have a much better quality of life than many others in the world. For this reason, I believe it is super important to give to others less fortunate than us. Once you are debt free and have an emergency fund saved for yourself, it’s really worth finding a charity you like to donate to. There is no better feeling knowing that you are helping others while also helping yourself. If you want your money to go the furthest, have a look at The Life You Can Save website, which I will link at the bottom. Even just $10 a month is a great way to start and can go a long way!
8. Put your money to work.
If you don’t have any short term goals (less than 5 years), why not put your money to work by investing it? Investing is a great way to build wealth for the future and with todays technology it is really easy to get started. Micro-investing apps allow you to invest with as little as $5, and if you have a bit more to invest you could look at platforms like Pearler or one of the big four banks. If property is more your thing, you may look at investing in a rental property. If this all sounds too hard, it may be worth salary sacrificing some money to your super to help boost your retirement fund! Any money you can put aside now will only help future you further!
9. Check your super!
Super isn’t something that is explained very well when we first start work. Normally, when you get your first job, you will just use the default fund the company uses. I first started working at a pub, so was given a bunch of paperwork for Host Plus, a hospitality super company. I didn’t have much explained other than it was a requirement for me to fill out and my boss would pay money into it.
Despite this lack of education, superannuation is actually super important and vital for our retirement. For this reason it’s important to know who you are with, and actually check in and see how it is performing. The key things to look for are the fees you are paying, how they are eating into your returns, and also the actual fund option you are in. If you still have many working years left, ideally you want to be in a growth fund as you have time on your side. As you start to get closer to retirement, you will want to continue to change your fund to more conservative as you will soon be relying on those funds to live.
Another thing to check is if you still have multiple superannuation accounts. Combining these will save you a lot of money on fees and help grow your balance much quicker.
10. Consider insurances- private health, income protection, TPD cover etc.
Lastly, I just thought I should mention insurances. While insurances may not suit everyone, it may be worth looking into. If you are a high income earner and earn above 90k, if you do not have private health you will have to pay the Medicare levy surcharge. This may be just as expensive as private health so it might be worth getting something for your money rather than just paying extra tax.
Income, total and permanent disability insurance, and life insurance may also be worth looking into. Often income and TPD insurances can be built into your superannuation fund already, so before organising insurance make sure to have a look at your super. Life insurance may also be beneficial if you have dependents. If you or your partner pass away unexpectedly (morbid I know), life insurance can give your family a great pay out to help support them in a difficult time.