As a financial planner, I work with all types of people when it comes to managing money. Some are spenders, others savers, some with no debt while others are drowning in it. This week, I am going to give 5 tips on managing your money.
When that pay cheque hits your account, take your savings from it immediately before you spend a penny. That way, you’ve increased your savings account before casual purchases erode your disposal income. Thinking you will save money with whatever is left over at the end of the month is only kidding yourself. If you are not disciplined to transfer money out of your current account each month yourself, set up a standing order so it comes out automatically.
Open a second current account. Work out what your household bills are, including those once a year bills. Put the monthly equivalent plus 10% into that account every month and have all your household direct debits come out of that account. Anything left in your personal current account is for you to spend on whatever you want.
This is a no brainer. Credit card interest is incredibly high. My own credit card interest rate is 17.52% per annum. If someone told me they would like investment returns of 17% per annum, I would tell them they are nuts. Yet people pay that kind of interest every month. With the interest rate compounding each month, it won’t take long for you to be in big trouble.
It is very easy to get envious when you see friends with nicer cars, tv’s, holidays. Don’t be. Not everyone earns the same and if you try to compete with someone with higher disposable income, you will get yourself into financial difficulty. Or maybe the Jones’s fund their extravagant lifestyle through debt. I remember visiting a client during the Celtic Tiger and being amazed at the jeep and BMW in the drive way and all the mod cons in their house. How could they afford this? I knew they had the same level of income as me. It didn’t take long find out, they had released equity on their home to pay for their lifestyle, paying for their cars and furnishing over 30 years.
Your lifestyle should be based on your level of income. If it doesn’t, you need to adjust it or change to a profession that will pay more.
That’s not a typo, I didn’t mean “Live within your means”. The cost of your lifestyle needs to less than you earn. Why? Because there will come a stage in your life when your income will stop completely. In order for you to continue to live a life resembling the way you have been living for over 40 years, you are going to need money. By reducing the cost of your lifestyle now, you will be able to continue it well into your old age.