“Annual income £20, annual expenditure £19/19/6; result happiness
Annual income £20, annual expenditure £20/0/6; result misery”

Charles Dickens – David Copperfield

Australians are typically very good at spending money. Give me $1.00 and I will spend $1.10, thanks to easy access to credit (often in the form of a credit card).

But there comes a time when the need to exercise some personal financial constraint becomes necessary. This may arise as a result of the loss of a job, reduction in income, starting a family, or getting a mortgage and educating children. For some, the need to get our personal finances under control is simply because we have let our debt get out of control.

Being out of control of our personal finances can often lead to depression, fear, anger and more often that not, we just might not be a nice person to be around.

However, there is hope. We can get off the debt ridden treadmill and get our financial lives in order. The difficult question is HOW?

An old lesson

Back in 1926, American publisher George S. Glasson published the first in a series of articles on achieving financial prosperity. These articles culminated in publication of his famous book, ’The Richest Man in Babylon’. The book is still readily available today both in print and electronic format. It is easy to read and is still as relevant today as it was when it was first published in the early 20^th Century.

The seven key messages:

Pay yourself first – set aside part of every dollar you earn. Ideally you should look to save 10% of everything you earn. This money is not being saved to buy a new car, have a holiday, or even buy a house. It is being put away for the long term and will be used to provide an income when we are no longer able to work. For some, making additional contributions to superannuation may be an ideal way of saving the extra 10%. If you can’t afford to save 10%, then start by saving some small part of your income and gradually increase it. Ideally we should be aiming to live off 90% or less of our income. This may take a little time to achieve.

Manage expenses – we all have expenses that need to be met in order to live, including food, housing, clothing and transport. But many of us spend unnecessarily on “other stuff”. This is what we call discretionary spending and it often consumes most, if not all, of our surplus income. Start by setting a budget of known fixed costs, and then allow for some discretionary spending. Look back over past bills and identify your fixed expenses. Bills for fixed expenses often arrive at irregular intervals. A phone bill might arrive once each month or once each quarter, but you might be paid weekly or fortnightly. Expenses should be totaled for a full year, and then divided by the number of pay days to work out how much needs to be set aside out of each pay to cover bills as they arise.

Grow your wealth – now that you have started saving a part of every dollar you earn, you should look to having it grow in value. The investment earnings achieved should be added to your growing pool of savings.

Protect your capital – in order to protect our savings from loss, care must be exercised to ensure the security of our principal. Before investing, understand the associated risks and, if the risk is unacceptable, look for a more suitable alternative. Take advice from a suitably qualified expert. There are many good investment savings plans that allow small amounts to be saved on a regular basis while providing access to a wide range of investment options including fixed income, shares, property and overseas investments.

Invest in your home – owning your own home provides security for you and your family and home ownership is the aspiration of most Australians. Home ownership also delivers favourable tax concessions in that any gain we achieve on the sale of our home is generally exempt from tax. It therefore makes sense to maintain and improve our home, within reason and without overcapitalising, to ensure we maximise the price we can achieve when we eventually sell.

Protect yourself and your assets – we all understand how important it is to insure our possessions, be it our home and its contents, our car and the like. But how many of have adequate insurance on our life and our ability to earn? We should seek the advice of a qualified professional adviser to ensure that we are adequately insured against events that might rob us of our life, or our ability to earn. Yes, you can insure your future income.

Invest in yourself – one way of building wealth is to increase our capacity to earn. To achieve this is to be willing, irrespective of our age, to increase our knowledge and skills through continuing education and training. Many people expect their employer to provide additional training. However we should take personal responsibility for increasing our knowledge and experience by investing our time and money in undertaking suitable training that enhances our opportunity to increase our earnings over time.

Taking control of our financial future takes time and discipline. It will involve making some hard decisions but if we make a plan and stick to it, over time it will become a habit and will deliver financial security and prosperity.

For many people, having a coach or a guide to whom we are accountable will keep us on track and provide the impetus to keep going, even when times are tough. A financial planner can fulfil this role so if you need any help with making a plan for your future, contact us today and we can .

Source:            Peter Kelly, Centrepoint Alliance

It doesn’t matter how much money you have or make, sometimes it just doesn’t feel like it’s enough. When you create and stick to a budget, at least you know how much you actually have and what you can do to make the best of it. 

Budgeting shows you where you are financially, and helps you map out a path to where you want to be.

By creating a budget and setting aside a few minutes a week to keep track of your money, you will be able to:

• Make informed decisions about what to do with your money
• Figure out what changes you should make in your spending habits
• Start getting into good saving habits.

Step 1 – Track what is coming in and out

The first thing to do is figure out what money you have and where it goes. Try to keep a diary of your expenses and your spending for a couple months. This will enable you to calculate where your money is and how much spare cash you have after everything is paid.

Make a list of all the regular expenses you have such as credit card bills, rent or mortgage payments and grocery bills. Don’t forget items that pop up unexpectedly such as holidays, birthdays or insurance premiums.

Step 2 – Manage your budget

Regardless of whether your budget is in the red or in the black there are things you can do to be thriftier. Some easy ways to reduce your spending are:

• Find small, non-essential items you can cut back on.
• Are there any direct debit payments which are being paid without you actually using the service? This could be an old internet provider or a gym you don’t go to any more.
• Can you get a better deal on your services? Sometimes switching your phone, mobile, gas or electricity can provide you substantial savings, it helps to look at all your options.
• Can you pay more than the minimum on your debts? Whether it’s personal loans or credit cards, paying the minimum will hardly make a dent as you will only be paying off the interest.

Whatever happens, don’t ignore the problems. By being open and honest about your financial difficulties with me, we can look at solutions to help you out.

Step 3 – Make goals and stick to them

It is time to get your money to work for you by making financial goals:

• Short term goals – make them achievable in a realistic timeframe. They could be as simple as paying off your credit card or saving up for a family holiday. Make sure you reward yourself when you have achieved them.
• Long term goals – these can be harder to achieve as they seem so far away, but look at goals such as saving for a deposit, paying off your mortgage quicker or saving for your retirement.
• Expect the unexpected – it is a good idea to put some money aside for emergencies or unexpected events. You could aim to save enough to cover the cost of replacing an expensive household item, but a lot of people aim to have three months’ pay saved up.

Once your goals are made, stick to them. But don’t beat yourself up if you slip up for a month or two; simply reassess your goals and get back to them.

Step 4 – Speak to a professional

We are here to help. If you feel that you are in over your head and or just want to get a step up with your finances, make an appointment today and we can help you create a financial strategy that will help you achieve your financial goals.

Source | IOOF