Today, we’re going to be looking at something that can seem somewhat scary – MONEY! (and it’s friends, Credit Cards and Loans).
I’ve had an awful lot of “learning the hard way” experience with all of these things, and hopefully I can help you avoid some of the mistakes I’ve made along the way. These are my rules for how I manage our money day-to-day.
Rule 1 – Live within your means
Do your income and your outgoings match up? Or are you earning $1000 a week and spending $1050 (or even more!)?
If your income is equal to or more than your outgoings, YAY! If your income is less than your outgoings, you need to do something about that. Which brings us to…
Rule 2 – Have a budget and stick to it
This is important, whether you are living within your means or not. However, if you’re spending more than you’re earning, this will be a much more painful process.
There are several ways of doing this – an app, on a excel spreadsheet, or good ol’ paper.
First step, no matter what method you’re using, is to take all your ins and outs for a month and categorise everything – groceries, cars, spending money, EVERYTHING. This is can be somewhat scary – I almost had heart failure the first time I did this and saw how much we were spending on food (not even takeaway, just plain old grocery shopping).
Use these ins and outs to design your budget and work out where you might be able save some money.
Rule 3 – Save a little bit each pay packet
This doesn’t necessarily mean putting money into a specific ‘savings’ account, but that’s definitely the simplest way.
What we tend to do makes our money work harder for us – we have a loan with a redraw facility, so we put our “saving” money into the redraw account. That way, while the money is sitting there, it is reducing the amount of interest we’re paying on the loan and we can pull it out if/when we need it.
Rule 4 – Be smart with your debt
The first part of this is that just because you CAN get a certain amount of debt, doesn’t mean you should. You want to minimise your debt. Just because the bank is willing to give you $25,000 for a car loan, doesn’t mean you should go out and buy a $25,000 car if a $12,000 one will do. Don’t get sucked in by those credit limit increase offers that banks send out regularly – a lot of people get the increase “just in case”, then end up spending the money on things they don’t really need. Which is exactly what the bank is counting on you doing. Avoid this, and just don’t do it.
The second part about being smart about your debt is managing it well. Always make your payments on time. Pay more than the minimum payment amount. Pay off your credit card every month.
If you’re in a situation where you’ve ended up with several credit cards with high interest and you’re not able to pay them off, go visit your bank and have a chat. Often, you can roll those amounts into a single personal loan, which will usually have lower fees and interest rates. The big thing if you do this is to not go and just get another credit card afterwards.
Rule 5 – Re-evaluate everything on a regular basis
Life changes, and with that your cash flow requirements can also change. I’d personally recommend doing this every 12 months, or whenever you have a ‘major life change’.
Not regularly checking in is almost as bad as not making a budget in the first place.
I was approached by Jessica from Credit Card Insider to do this post. I did not receive any compensation, monetary or otherwise, for this post.