If there’s one tip I’m constantly asked for, it’s what’s the best way to get on top of your finances? And for me, that’s easy to answer – “Live Within Your Means!” Good money management boils down to harnessing the cash flow and getting on top of debt – with the biggest gremlin being credit cards.
If the word ‘budget’ annoys you and has you running for the door, try ‘spending plan’ instead. A budget/plan should be divided between fixed regular costs (those you MUST meet) and discretionary spending (the WANTS and nice to have stuff.)
Work out first what it costs for mortgage or rent payments, food, clothing, utility bills and loans. This means you’ll have a much better idea of where you stand and how much you are spending on fun stuff like entertainment and non-essentials.
Losing the credit cards should be a top priority. Learning that if you can’t afford it now, you can’t have it, is a great skill to take through life. That’s not to say lay-buy or payment plans can’t work, but we need to move on from the ‘I want it now’ mentality.
Learn what you’re capable of when you’ve got less commitments like interest payments for items you’ve forgotten that you’ve even bought. You may be pleasantly surprised at what you can achieve with better spending and saving habits.
Did you know, that if you’re 25 and have a nest egg of around $5000 and you’re able to save $50 – $75 a week at around 7% average interest (compounding over the long-term) you could have yourself a cool $1 million by retirement at 65? It might be a while off, but it does highlight the opportunity cost of spending around $200 to $300 a month on eating out, movies, drinks and ‘stuff.’ Add that to your compulsory super and that’s not a bad way to enjoy post-work life.
Most however don’t really start thinking about retirement until they’re 40 plus and suddenly realise they’re half way through their working life and have been wasting the ready for over 20 years. It’s time to analyse those poor financial habits now!
Reducing debt and saving as much as possible is imperative if you want to maintain a certain standing of living both now, and when you retire, and living within your means makes life a lot easier. Life without ongoing financial stresses also helps you sleep easier now. Chances are, the Centrelink age pension will be harder and harder to come by and eventually disappear.
It’s up to us to take charge of our financial future, and the sooner, the better. Living within your means from now, is vital. Are you?