It’s easy to spend money without thinking – takeaway coffee twice a day, a round of drinks every time you go out, an impulse buy on the weekend. It’s often the little things that blow the biggest hole in your pocket, and it’s never too late to start being smart with your money.
1. Set a realistic budget
It may be financial advice 101, but having a budget is the smartest money move you can make – it helps you escape the trap of living from one pay day to the next, and it’s a good way to find the right balance between spending and saving. Without a budget and a clear picture of your finances, it’s easy to slide into debt.
Creating a budget sounds more daunting than it is. Begin by listing all your regular expenses – rent or mortgage, groceries, utilities, loan repayments, even your weekly takeaway coffee – as well as irregular expenses that pop up every now and again – insurance payments, clothing, car and house maintenance. Next, list your income. If you don’t have enough left over for savings after covering your bills, adjust your expenses until you find enough.
2. Develop a savings habit
Becoming a regular saver is the smartest money move anyone can make. Greg Pride, financial adviser with Centric Wealth, recommends setting aside a minimum amount each month in savings. Not only will this money accumulate at a greater rate than you expect, it can also act as a “cash reserve” if unplanned expenses crop up. “You need a little buffer to make sure you can deal with unforeseen events,” advises Pride.
Look for high-interest savings accounts, which reward regular deposits and charge lower fees.
3. Minimise unnecessary spending
Do you really need a takeaway coffee every morning? How about that gym membership you pay for but never use? Making small changes to your spending habits can make a huge difference to your bank balance. At $4 a pop, a takeaway coffee once a day on working days is costing you more than $1000 a year, so small sums are not insignificant when you look at the big picture.
4. Control your credit card… don’t let it control you
Credit cards are a great way to buy if you pay the full amount each month. However, if you pay only the minimum monthly repayments – or worse, miss a payment altogether – you may become trapped in a cycle of ongoing debt. Interest on credit cards can be as high as 20 percent, and the longer you take to pay off a credit card bill, the more interest you pay.
“You do not want to be stuck paying off high interest rates which can take many months or years to get under control,” says Michael Nowak, adviser & partner at Joe Nowak Financial Services Group and national president of the Association of Financial Advisers. “Always have a plan to pay down your credit.”
The smartest money move in this case is to treat you credit card like cash and pay the full balance each month.
5. Monitor your spending periodically
Nowak recommends a budget health check a few times a year to ensure you are keeping within your means. “Do this to keep your budget and spending on track and identify any issues that need to be addressed,” he says. “For couples, your budget is a shared responsibility and budgets should be monitored together.”