Achieving an improved personal financial position is not dissimilar in many ways to running a business; except in this case the business is you. Any business advisor will tell you that at its simplest, you either need to increase revenue (for you this means your salary or income from investments) or reduce costs (how much you spend or at least what you spend it on). Here’s a few tips that might help start you on the right path.
Track your spending
Keep thinking about yourself as a business. Why do all businesses keep records of their income and expenditure (other than to keep the tax man happy)? If they don’t know where their money is going now, how can they possibly create a proper plan for the future. The same logic applies to you personally.
There are many cheap (or free) apps and other programs around that can help you here, particularly if you use debit cards rather than cash as you can download your transactions into MS Excel or the software you’re using and allocate your costs to different spending categories.
This seems so basic, but even if you do this for a month or two, the results will amaze you and can in itself change the direction of your spending patterns for the better. It’s all about visibility.
Next, do a budget
Doing a budget allows you to decide where you intend to spend your hard earned money and having completed it, to work out even if you stick to it, whether you will have enough to get by.
Many a draft business budget goes through several versions before agreement on the final numbers is reached.
Where am I spending my money?
Having analysed where your money is going now, conduct a review like you would if it was your family business. Where can I sensibly cut back discretionary spend and where do I need to set aside money for unexpected costs that might arise from time to time. Am I getting the best deal I can in the areas I spend most of my money, such as health and other insurances, electricity, gas, travel costs, and then there’s loans (see below).
How am I doing against my budget?
Having created your budget you need to check in from time to time to see how you’re tracking so you can make any changes that you need to make to get back on track. If you’re progressing well, how can you look to use the surplus to build, even with small amounts, investments into assets that will provide capital growth and an income stream over time.
Use a separate account
Unless you are very financially disciplined, a simple way of forced saving is to have a separate account that part of you wage is transferred into immediately you receive it. If you don’t see it in your day to day account you’re less likely to spend it.
Conduct a Loan and credit card health check
Is credit card interest eating away at your paycheck? Have you had personal or home loans for some time and not reviewed them?
If you answer yes to either question you really need to have your liabilities reviewed to see if you can get a more competitive interest rate or improved conditions associated with your loans. It might also make sense to consolidate your debts into a lower interest rate product.
When you can, you might need to think about cutting up your credit card if you’re not paying 100% of the balance each time a statement comes in and in the meantime, think about a balance transfer as many financial institutions are offering low or no interest rate periods if you move your credit card debt to them. This only really works for you if you pay down the debt using the amount you would otherwise have had to pay in interest.
Increase your income
The reality is that having completed a rigorous review of your spending habits, you still are limited by the amount of money that you receive. Investing in your personal growth to develop your career and the financial returns that you receive should not be ignored. I’ll talk more about this is future articles.
Invest in a professional financial plan
Having an independent professional look at your personal circumstances and develop a plan for you that takes into account where you want to be financially and by when is vital. Defining realistic goals and a plan to achieve them with help from someone with experience who is less likely to be emotionally invested in the decision making is just so important. It’s no different to why businesses routinely engage experts to advise them.
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