There are endless online suggestions for tips & tricks to successfully manage your personal finances – some of them useful, some not and some are just plain wrong! And then there are the kind that not everyone will be able to abide by all of the time.
So, to make it a little easier for you, we thought we’d come up with our own top 10 rules for personal finance! And of course, these can be achieved through many aspects of your life; not just earning more.
In our recent blog titled “3 Steps to Managing Your Financial Success” we looked at developing an understanding of where your money is going, spending less than you earn and having a savings plan in place – and that’s a good place to start.
The top 10 rules of personal finance – at work, at home and at play.
- Simplicity is key
Credit cards are not your friend (yes, there are times when they’re useful, but if you’re not paying off your balance every month – it’s very, very expensive credit).
The more credit cards you have, the more interest you are likely to be paying, the lower your credit score and in this day and age, the greater the chances of credit card fraud. The convenience often really isn’t worth the cost, so why not ditch most of your credit cards – except maybe one for emergencies? Sometimes simplifying is best.
- Don’t rely on your “future self” to take care of your current finances
Ok, so you’re shopping for a new car (that you don’t actually need because the current one is more than adequate) and you think to yourself “I’ll be fine, I can pay it off later”, because you think that future you will have plenty more money. But what if future you doesn’t? Or future you is dealing with the payments of that dream retirement home you so desperately want? Think before you buy. Can you actually afford luxury goods right now? If the answer is no, don’t.
- Try the 30 day rule
For those expensive purchases, why not apply the 30-day rule. That is, wait 30 days after the impulse to buy something new to avoid any hasty decision-making. And if after 30 days you still have the impulse to buy, you can consider purchasing. This technique works effectively because you aren’t denying yourself any goods, but rather just delaying the process.
- Create your emergency fund
Why would you do that? In case of real emergencies only. You might consider having anywhere between 3-6months of your annual income set aside to protect yourself in case of any sudden unexplained losses of income or in case you have to privately fund life saving medication.
- Eliminate debt
When you rely on debt to make purchases, you always spend more than you would if you used cash or debit cards. In terms of credit card debt, it’s important to remember that if you can’t afford to pay a purchase off by the end of the month, then you can’t afford to buy it. It should be as simple as that.
If you roll over your credit card debt to a consolidated loan – which is likely to be considerably cheaper, make sure that you cut up the credit cards that got you into trouble in the first place. There’s no point having a consolidated loan and new credit card debt.
- Heading for retirement? What’s your plan?
If you’re planning on using the “sell my business to fund my retirement” option, you need to actually have a saleable business. For more on that, check out our blog on preparing for your financial future (part 2). And remember, a retirement fund is exactly that, a fund for your retirement (aside from your super) and shouldn’t be used for dipping into along the way. In fact, if you’re creating a retirement fund outside super, you might be paying more tax than you have to. We’d suggest that you seek advice from a professional financial advisor.
- Set goals and stay on track
Whether it’s travelling around the world or buying your first home or your dream home for retirement, you can’t reach your goals without first knowing what they are, and how you can reach them. Write them down! Keep your goals in mind and direct your daily activities towards actually achieving them. If you want to spend money along the way see rule 3.
- Don’t ever go shopping without a list
It sounds like simple advice, right? Make a meal plan each week and write a list of what you need accordingly. That way, when you go shopping you’ll not only spend less time wandering those busy aisles, but you’ll save money by avoiding those things you don’t really need. And as a side note, taking your lunch to work can save you too! Think of it this way – if you’re spending up to $10 a day on a sandwich and coffee, that adds up to an average of $50 per week or $2400 for your 48-week working year. And in the context of reaching your savings goal, that could be viewed as a little excessive, don’t you think?
- Build a budget
Creating and managing your budget is an excellent habit to get into! A budget is a useful tool for both understanding what you need to spend per month, i.e. rent, electricity and food and keeping track of your spending on other things, like new clothes or dining out. This is your chance to dig through your bank statements and credit card statements and figure out the real numbers, allowing you to identify the areas you might be overspending and the areas you can afford to cut back.
- Spend less than you earn
In case you missed the link to our past blog on financial success, we will reiterate – spending less than you earn seems obvious, but it is the foundation of managing your personal financial success.
Of course, if you could use some extra help with managing your personal – or business – finances, we’d love to help! You can call Kerry on 02 6023 1700 or drop us a note.