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Four steps to being your best financial self

The thought of money management and creating wealth for your future may seem overwhelming but it doesn’t have to be.
money management

The thought of money management and creating wealth for your future may seem overwhelming but it doesn’t have to be. The key is to start with the basics – making sure you spend less than you earn – and build on that foundation. Here’s my four-step guide to help you become the best financial version of yourself.

Put your money to work

  1. To get ahead financially you need to spend less than you earn. Easier said than done, given the rising cost of living, high interest rates and expensive rents. If you’re living from pay to pay there are a number of things you can do to turn things around.

The first step is to work out where your money goes, and that involves establishing a budget. Make a record of everything you spend, add it up and take that amount away from what you earn.

If you’re in negative territory or want to save more then look at your expenses for ways to cut costs. Often, the simplest way to generate savings is to find a better deal on your regular bills. If you want to give your savings an extra boost you could also explore ways to make more cash, whether that’s asking for a pay rise or taking on other jobs.

A popular approach to managing money is to create a spending formula. One example is the 70:20:10 plan where you divide your take-home pay into:

  • 70% for everyday costs such as rent or home loan, utilities, food, clothing and transport.
  • 20% for saving.
  • 10% for splurging.

You can play around with the percentages but make sure you always include saving as part of your formula.

money management
(Credit: Getty)

Ditch bad debt

If you have any “bad” debt owing – by that I mean credit cards, buy now, pay later etc – then getting that monkey off your back should be a priority. Before you do that, though, I suggest saving at least $1000 so you don’t have to rely on your credit card if you’re faced with unexpected expenses.

If you have multiple credit cards consider using a balance transfer credit card offer where you pay no (or very low) interest for a limited period on the debt you transfer to a new provider.

Check if you’ll be charged a balance transfer fee and what the rate reverts to when the introductory period ends. You may also want to look into the “avalanche” and “snowball” methods to clear debt.

With the avalanche method, you put any extra money towards paying off your highest interest rate debt first, and with the snowball you focus on the debt with the smallest balance first. Another option is to consolidate them into a single loan so you have just one single repayment.

The money management mindset

To become a successful saver it’s a good idea to set goals. Having something tangible in mind – a house deposit, renovations, your kids’ education or an overseas holiday – can help you stay on track. Consider breaking things down to short-, medium- and long-term goals.

Paying yourself first is a must. Work out how much you can save from each pay then set up regular automatic direct debits from your everyday account into your savings. If you have multiple savings goals, consider creating savings “buckets”.

Open multiple accounts and name them based on your goal. That way it will be easier to see how you’re tracking. For longer-term goals – say, four or five years ahead – you may consider investing rather than using a savings account (see next point).

Consider enlisting a friend as a “savings buddy”. If they’re also trying to save you can then keep each other accountable. Check in or call one another if you’re tempted to raid your savings. It’s also important to understand why you do what you do when it comes to money.

Often there will be “triggers” that make you spend and they may be based on emotions or external factors such as sales. When you work out your triggers you can put fixes in place so you don’t get tripped up. I look at five common triggers and the fixes in my book, A Real Girl’s Guide to Money.

Build wealth investing

If you really want to get ahead you need to make the move from saving to investing. Returns on investments such as bonds, shares and property over the long term are generally higher than what you’d earn from money stashed in cash. Of course, that does mean taking on more risk.

You also need to take a longer-term view. If you want to invest in shares there are a few ways to go about it. One is to buy shares in a particular company. You’ll need at least $500 plus the cost of brokerage to get started, although the ASX recommends starting with at least $2000.

The tricky part can be knowing which shares to choose. It can also be hard to achieve diversification (spreading your risk around different types of shares) unless you have a lot to invest.

Exchange-Traded Funds can be a way to get that diversification and you don’t have to choose the shares yourself. Most ETFs aim to mirror the returns of a given market
index. ETFs are listed on the ASX and there are plenty to choose from.

Some focus on the biggest companies on the ASX, others invest in tech companies or overseas companies. There are even ETFs that cover commodities, fixed interest and gold.

Property is another popular investment option. You’ll need to save for a deposit or tap into any equity you’ve built in your home to get started. It also involves taking out a loan and you’ll also have to budget for expenses such as land tax, council rates, insurance and maintenance and repairs.

That said, you’ll earn rent to help cover some of these expenses and if you choose right the value of the property will grow. Both shares and property have their pros and cons. It’s simply a matter of choosing the option that best suits you. Superannuation is another great way to invest for your future.

Most Aussie employees over the age of 18 are entitled to super guarantee contributions from their employer. Currently, employers have to pay super contributions of 11% of an employee’s ordinary time earnings but from July 1, 2024, that will increase to 11.5%.

One of the best things about super is that your employer’s contributions or any before-tax contributions are taxed at just 15%. It pays to have a say where your money is invested and choose your own super fund.

Make sure you take into account the fees and how the fund’s long-term performance compares to other similar funds. You can also have a say in how your money is invested. For example, you could choose a balanced option or be willing to take on more risk if you have time on your side and go for a growth option or invest some of your super in Aussie shares.

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