Debt is one of the fixtures of modern life for most people but if you feel it’s getting out of your control, it’s time to act.
Fortunately, there are straightforward ways to regain control of your money.
Start a debt management plan
This will mean prioritising your debts in order of urgency, setting a budget, cutting expenses, consolidating, and planning ahead.
1. Set a budget
Work out how much you spend each week on your debts and discretionary spending and how much income you have. It’s vital that you are honest. From this you can work out how much you need to service your debts to bring them down to manageable levels.
2. Save on easy things
The most obvious way to reduce debt is to cut down your spending on non-essential items. Simple ways include doing things yourself that you previously paid others to do, such as cleaning your house. Eat out less. Cook at home and eat your leftovers at work. Don’t buy things you don’t need at the supermarket and turn off lights and computers when they are not in use. Walk more or take public transport.
3. Stop using your credit cards
Pay cash. Put your credit cards away. The simple logic is that you won’t be tempted to overspend if you only have cash.
4. Pay the minimum on each debt
Service each debt, be it phone, mortgage or credit card each month. Pay off as much as you can but at least pay the minimum, which will protect your credit score.
5. Consider a consolidation loan
You may be able to reduce your interest charges by consolidating your debts into one low-interest loan.
6. Talk to a professional
Your Adviser will work with you to develop a debt management plan that’s specifically tailored to you.
But if you are feeling really overwhelmed, seek help from your doctor.
What lights your fire financially? Everyone’s financial future looks different.
For some people, it might be as simple as being completely debt free. Others couldn’t live without an annual holiday. Many want the security of a small nest egg or emergency fund being available. Others would love an investment property. Whatever it means to you, a brighter financial future can start with a few small changes to how you currently deal with money. The key is usually to establish some good financial habits – no matter where you are right now.
What are some steps you can personally take towards a brighter financial future? Most often, it starts with living within your means, or spending less than you earn. I’ll outline a few options and suggest you try a couple to begin with and see what a difference it makes in your personal circumstances.
- Track your daily spending habits – get a receipt for everything you purchase and pop it on a spike or in a box for a month. See what’s really going on with your spending!
- Begin a budget. And before your eyes glaze over, there’s plenty of online calculators that can help you, so you don’t need to do it alone. Try the ASIC MoneySmart option to kick things off.
- Review your spending habits – Do you have the best phone plan? Are your insurances the best value for coverage and cost? Are your bank accounts and fees cost effective? Do you have a low cost loan and a good deal on your mortgage? Can you cancel some subscriptions you no longer need? There’s lots of comparison sites now available to help! Where can you cut back?
- Start clearing debt – work out what’s the highest interest rate across your various debts – quite often, it’s the credit card or personal loan. Especially if the debt if not tax-deductible, work out a plan to bring it down more quickly. Paying the minimum each month, you’ll never get rid of what you owe! As one clears, cancel or reduce the facility and then start directing those funds towards the next debt.
- Is it time to start investing? As your debt comes down and you no longer need to fund those large payments, can these be directed towards an investment portfolio? Find out if you’re ready to start investing here.
- Take care of your future! Have you given due care or attention to your retirement savings? It’s easy to put it on the back burner thinking it’s so far off, but it is your money and needs to be nurtured. Chances are, the Government’s pension plan will be less and less available over time, so taking care of number one should be higher on your list than it likely already is. And the longer you have to go, the better compounding interest will work in your favour.
Hopefully, these tips will help set you on the way to a brighter financial future. I’d love to know if you’ve tried one out and let me know how it’s worked for you!
If you had to define your relationship with money, are you guys going strong? Or due for some serious counselling sessions?
Just remember, like in any relationship, small changes can make a big impact. Regularly paying attention to our partner can make our emotional bonds stronger, and focusing a little loving attention on our financial relationship can also yield dividends! (see what I did there?)
It might just be time to sit down and have a stern chat with yourself and bring some clarity into your relationship with the dollars. Look for ideas on where you can improve. Observe your friends and family members and their relationship with money. Are they out every weekend, have all the latest stuff and are constantly bemoaning the fact that they just can’t keep up with their bills? Or do you have that careful friend, who has a budget and for the most part sticks with it? They live within their means and still don’t really seem to miss out on too much.
I want you to think who you’d rather be like and five ways you’d like to improve your relationship with money.
- Do you have personal debt you’d like to pay down or pay off?
- Is there a holiday you’d like to save for?
- Would you like to start putting a little more into your superannuation?
- Is your first home or an investment property something you’d like to achieve?
- Would you like to start a small share or investment portfolio?
- Would you like to go to a better gym?
- Be able to afford a dog?
- Buy a membership?
Come up with at least five goals that have something to do with money.
Next I want you to prioritise them. What is the most important objective you have? Did something stand out as your number one priority?
What love and attention can you bring to this one goal, and what small improvements can you make to start turning things around? Don’t worry about all the other items on your list. You can get there later. Just focus on your main priority and think of ways you can make small changes to make inroads.
If you want to pay down debt, can you skip the daily latte and put the extra $5 per day onto the loan? That extra $100 per month means you’ll be $1200 further ahead by the end of the year. Will that help you get there sooner? As in much sooner?
I’d love to hear some of the ‘little things’ you’ve done to start improving your relationship with money and see if you become more in love than ever once again…