If you want to be financially sassy, go no further than this excellent guide. Here is an extract from a superb new book called The Joy Of Money by the authors Kate McCallum and Julia Newbould. The book is filled with fabulous nuggets that will keep you in a financially healthy position and give you the type of security we all need, especially in uncertain times like we are currently experiencing. So, follow these tips.
Money – the best things in life are free – but you can give them to the birds and bees…
SPENDING
Start by assessing your current spending. We think one of the best tools available is the ASIC Smart Money Budget Planner. Simply download the excel spreadsheet from the ASIC website, and enter in your take-home income and your expenses. We like to use credit card and bank account statements to do this.
It doesn’t need to be correct to the cent – or even the dollar. The idea is simply to draw a picture of where your money is going.
Now you can benchmark.
People often ask what their spending should look like. This is a tricky one – as everyone’s different.
Here is one useful rule of thumb:
• 50% on essentials – housing, utilities, food, essential clothing
• 30% on nice to haves – entertainment, special clothing, holidays
• 20% on savings
You might be thinking that you need a little more than 50% if you’re living in a major capital city and paying a sizeable rent or mortgage. That’s okay. You simply have to allocate some of your dollars for “nice to haves” into your allocation for “essentials”. Just don’t scrimp on the savings.
Now that you have a picture of your spending, and a benchmark to compare, the question you need to ask is this: What can I do to improve the way I spend money?
When you look at your cashflow and you’re trying to find savings, our view is to look for the chunky money. We’re not fans of necessarily focusing on cutting out your morning coffee. It really doesn’t add up to that much on its own. If you enjoy your morning coffee, it’s also probably not a sustainable change.
Instead, look for the biggest ticket items – where does most of your money go? And who are the biggest suppliers – who do you spend most money with? Ask for a discount. The main thing with conscious cashflow is you give things a whirl and you just keep practicing. We’ve found over the years that we just get better and better at not buying things we don’t really need, at getting a better deal or finding substitutes mean that we don’t need to spend as much money to achieve the same outcome.
Create your cashflow plan The next step is to create your future plan. Back to the Smart Money Budget Planner (again). Though this time, you are going to use it to create your plan for how you intend to spend your money in the future.
Remember, this is about aligning how you spend every dollar to your values, goals, priorities. What changes can you make? What behaviours do you need to create to have the greatest chance of success?
Importantly, this includes not just spending but income. What are you earning? What is your income plan? What are your opportunities to negotiate a better income? What steps can you take (apply for a new role, seek promotion, improve your skills) to earn more?
PAY YOURSELF FIRST
Save first. Then you won’t feel like you’re failing at putting money away or that you’ve spent too much. Because the only money you’ve got left to spend is the money that’s left over for spending. Automatically diverting money is a powerful tool! You can’t spend what you can’t see.
ASSETS AND LIABILITIES
This is about what you own and what you owe.
Write down your current assets (what you own) and liabilities or debts (what you owe). Also write down what the cost of your liabilities are.
Now, create a target plan.
What do you want your asset position to look like in 10, five, two and one year? Write your target for your assets and your liabilities.
Ask yourself: what changes will you commit to so that you have the best chance of achieving these goals?
STRUCTURE
This is about setting yourself up for the best chance of success. We recommend structuring your money flow into five purposeful accounts – which align with the areas and benchmarks we discussed earlier:
• Essentials
• Nice to haves
• Savings – for the unexpected
• Savings – for fun
• Savings – for future you
• And we suggest that you split your savings 20/30/50.
So, of your savings:
• 20% to creating a buffer for unexpected expenses. This could be things like a major car repair, unexpected medical or health expenses, or an unplanned trip to visit ageing parents.
• 30% for fun. This is likely to include your short to medium term goals, whether it’s travel, buying a new car, or throwing a great party.
• 50% for future you – which is your longer term savings, including additional contributions to super.
Once you have our accounts set up, automate. That means, setting up direct credits to each account to ensure that the money flows where you’ve designed it to flow.
And when it comes to savings, we’re huge fans of the idea of “paying yourself first” – you treat your savings just like you treat rent or mortgage.
Most people spend first then save what’s left over. Savvy savers flip that: save first then spend what’s left over
So, for example, if you have a goal around fast-tracking your loan repayments, then automate a payment so that this money immediately gets paid into your mortgage or offset account. Or if you have a goal to super-charge your retirement savings, make an auto contribution to super. And of course, you can do some of each.
The great thing about saving first is that it helps you succeed – without you having to do much at all. And that’s because there’s less risk that you’ll beat yourself up for failing to put money away or feel guilty because you’ve spent too much. Because the only money you’ve got left to spend is the money that’s left over for spending. So it’s a powerful mechanism!
SET RULES
We’re also fans for money happiness – and couple harmony – of pre-setting the money rules by which you will live. This applies if you’re solo, or in a couple. You may even like to agree rules with your kids!
Here are some examples of money rules that you might like to try:
• Any expenditure from the “nice to have” account needs to be planned at least 30 days in advance.
• It’s okay to spend money in the “nice to have” account without consultation.
• Any spend of $x or more needs to be discussed.
• Credit card debt is a no-go zone. Card balances are repaid every month.
• As a couple, we save equal amounts into our super funds each year.
You can also define trigger events to help you keep on track or plan
for future events. Here’s a few examples:
• Once we have $x in our “unexpected” savings account, we can re-direct 50% to our “fun” account and 50% to our “future you” account.
• When our mortgage is down to $x, we will make after-tax contributions to super.
• We will not spend on “nice to have” home renovations until our mortgage is $x.
YEARLY REVIEW
Our final sassy tip is to ensure that you undertake a full and thorough yearly review. Don’t be on autopilot. Start at the top and review your values, goals and priorities, and then work your way back through the sassy framework.
Ask yourself these questions:
• What are we most proud of having achieved with our money management in the last year?
• What are we doing that’s working well (and we want to keep doing)?
• What opportunities are there for us to improve?
And along the way, we recommend regular quick weekly check-ins to make sure you’re on track. Importantly, these are about your life – not just money – because at the end of the day, the aim of good money management is to ensure that you create a great life.
