With so many financial products on the market available to consumers, it’s more important than ever to make sure you’re financially literate and in control of your finances. Effie Zahos, Editor of Money Magazine and financial extraordinaire, shares six ways you can get back in control:
Manage your money week to week
You should be actively deciding where you want your money to go. Whether you receive weekly, fortnightly or monthly pay; divvy up your pay into four separate accounts.
Create an account for your weekly bills, another for mandatory costs like car registration and servicing, a miscellaneous account (because you never know when things just ‘pop’ up), and your long term savings account. Once you’ve worked out your weekly bills and ideal savings, organise for that money to be automatically transferred into their designated accounts. Whatever money left, is your ‘play money’ to last you until your next pay cycle.
Think about what is important to you! Don’t ever look back and wonder where your money went.
Plan for the future
Have a goal for the future and a plan to reach it. You’ll be surprised what you can achieve when you put your mind to it. But without a plan, it won’t happen.
Start by writing down all the goals want to achieve and the financial input involved reaching it. Develop a realistic timeline and see how your plans abide with your weekly money management. Ensure your financial goals are realistic and account for mishaps like car breakdowns and celebrations.
Make your finances as easy as possible
We all have good intentions, but don’t necessarily get around to it. Make things automatic instead. Have money go automatically into your savings account or investment account every payday. This way, you don’t get overwhelmed seeing your entire paycheck in your bank account and you don’t (un)intentionally hoard the funds.
Set up a direct debit to pay your regular bills for mental and financial clarity.
Talk to your partner
Nothing kills a relationship like financial tension. Talk to your partner about where you stand financially and where you want to go. Whether you’re in a short or long term relationship, opening a joint bank account is a big decision to make. Ensure you’re both willing to commit to an agreed upon contribution on a frequent basis. Be sure to outline the instances when your joint account can be dipped into and that you’re both working towards a common goal.
If your partner wants a house and you want a 12-month round-the-world holiday, learn the value of compromise. Realistically, you may not be able to do both as extravagantly or as soon as you initially imagined, but perhaps sacrificing your 12-month trip for 6 months and allowing more time to save for a house would see both parties satisfied.
Investing is not gambling
You will gain financial success by steady, sensible decisions over many years, not by gambling on spectacular returns or picking a winner. The key concepts are:
- Diversification (spreading your investment)
- Buy things you understand (or use an unbiased professional who understands)
- Invest within your risk comfort zone (where you can afford the likely ups and downs)
Before investing, do your research. Enlist the assistance of a financial advisor or seek advise from a trusted friend who is a confident investor. When it comes to investing, you can never know too much.
Increase your borrowing power
A $10,000 limit on your credit card reduces your home loan borrowing power by about $40,000.
If you’re interested in entering the housing market or need a loan, you can increase your borrowing power with a few quick and easy steps:
- Improve your credit rating
- Cancel credit cards or reduce your credit limit
- Reduce your other debts
Avoid credit debt
If you need to borrow, avoid getting a short-term loan or pay day loan. They’re faster to process but harder to afford. In most cases you’ll be up for an establishment fee of 20% of the loan amount and an account-keeping fee of 4%. Take time to do the math: You could borrow $1000 for a month and find a cash advance from your credit card which would be about $220 cheaper.
Seek help and advice
Don’t be scared to seek advice. Whether you’re building your wealth, or things have gone horribly wrong, seek help from a financial advisor who is able to help you continue on, or get back on, the right path.
These tips were brought to you by Effie Zahos, Editor of Money Magazine, to celebrate the Australian DVD release of Money Monster.