Simplify Your Life
Module 5: Manage Your Money Better

Welcome back to SIMPLIFY YOUR LIFE and congratulations on your progress to date.

Before we embark on work/life balance issues in our last module, this week we are going to learn how to manage money better.

Regardless of  income, this is an issue I’ve found many clients sweep under the carpet. Working with numbers, let alone your own bank account can be a stressful situation for many of us. However, once you’ve cleared clutter, organised your daily life and made time work for you it is the most important area of your life to simplify and reduce worry in your life.

This week’s actions are included in the next five sections.

Part One

How is your money?

  • Are you in debt most months?
  • Do you regularly go into overdraft before your pay is due?
  • Is money always at the back of your mind as the pressure builds?
  • Or do you budget diligently, know when your credit card debt will be paid off and are saving for your retirement?

There’s no denying that money is an emotionally charged part of our lives.

It is a major means of exchange and can influence our lifestyle in many ways. In focus groups I’ve facilitated people regularly tell me money is important, in today’s society it is primarily what we use to pay for our basic needs; shelter, food and clothing. Often this is why work becomes a top priority in our lives, especially if its our main source of family income.

The first lesson in money management is that you don’t need to be a top earner, receive an inheritance or win the lottery to become financially independent.

Do the numbers, figure out the type of life you want to live and as a result, what you need to do now to be able to live that way. It’s a simple as that! In speaking with clients about financial freedom the key point I keep hearing is that we need to learn to manage money so we can stop worrying about it. For this reason it’s a key element of simplifying your life.

If you are reading this thinking I’m sounding crazy because you are over committed on a mortgage, trying to cope with crippling interest from a credit card and seem to be forever paying for something, be sure to read on, because you do need to get a serious grip on your finances so you can achieve the balance that’s required to live the life of your dreams.

The best piece of advice I was given recently was that money is simply a tool. The way you handle money can tell you a lot about yourself.

Use the 5 money strategies in the rest of this module to simplify your life and reduce financial worry.

Take Action

Resolve now to deal with your financial situation and not simply put it to the back of your mind in the hope that it will all work out somehow.

Part Two

Set financial goals and make a plan

Generally clients tell me that they want more money, it’s a key financial goal for most of us. You don’t need to be a financial wizard to realise that there are two ways to create more money – earn more and spend less!

Forget about get rich quick schemes and buy now, pay later bargains. Financial freedom all comes down to planning and goal setting.

Use the same principles that you would use for your career or relationship. Having specific financial goals will increase your motivation levels too. People regularly tell me how much easier it is to save money when they are working towards a holiday or house deposit. If you are aware that you operate in this way, continue to set goals that relate to your financial resources.

If you’ve put planning for a secure financial future at the bottom of your to do list, now is your chance to make some positive changes. It’s never too late to take control and set financial goals as a way of simplifying your life once and for all.

Common areas for setting financial goals include;

  • implementing a budget
  • reducing debt
  • paying off student loans
  • establishing a 3-6 month emergency fund
  • buying a house
  • funding care for elderly parents
  • generating passive income
  • retirement planning
  • investing
  • home renovations
  • a wedding
  • starting a family
  • a dream holiday.

Be wary though of financial goals that are centred around spending money rather than making it! Remember, once you’ve decided on your financial goals, turn them into effective SMART goals as discussed earlier in module one.

Get help if you need it

If you think all this financial planning involves too much paperwork or you don’t understand what it all means, get expert advice or increase your knowledge so you can take control of your finances.

A financial advisor recently told me that the simple line between financial struggle and success is usually due to knowledge. You can increase your financial intelligence by reading specialist books, using online tools, attending seminars and courses to learn more.

Aim to understand what your accountant, advisor or banker is saying so you can make informed choices.

Would you rather not think about your money situation?

I find most clients don’t want to know the truth about their financial situation as it means they will need to address it. The great thing about money management is its very tangible, you can use bank statements, receipts and budgets to track and measure your progress.

Let’s now take a closer look at how you can simplify and organise your finances on a day to day basis so that you spend less time worrying about whether or not you have the funds available to pay your rent or phone bill.

While many people see organising finances as particularly tedious, especially if you like to be spontaneous or are a creative soul, it will also help you build your wealth so you are able to live the life you want in the future.

Take Action

Consider the question, if I continue on the same financial path where will I be in 15 or 20 years? This will highlight the need to take control of your finances and simplify wherever possible.

Part Three

Establish your reality

Just like clearing clutter and managing your time, money is no different – you need to start by being totally honest with yourself. The best thing you can do to take control of your finances is determine exactly where your money goes. What is your income, what are your expenses, what assets do you have, what are you really worth?

Many people don’t have a clear picture of their financial status, so here’s a net worth equation that everyone needs to complete:

Net worth = assets (what you own) minus liabilities (what you owe).

Your net worth is a snapshot of your financial position.

First, write down what you own and what you owe – the difference is your net worth.

It’s a simple idea, quite frightening for many, but if you have more assets (property, cars, investments) than liabilities (mortgage, loans, debts) you are in a good position. With more liabilities than assets, not an ideal position, but at least you have a realistic picture of your current financial situation and can begin to plan accordingly.

Take a closer look at how your investments are performing (if you have any) or if you are simply spending more than you earn.

This process is meaningless unless you give yourself a reality check on where the income you have is actually going and areas you may like to change. Let’s get back to basics and start by listing all your monthly outgoings. I often find that few people have any idea what they are actually spending their money on each month until they sit down and itemise every single expense.

Yes, that includes newspapers, chocolate bars, lunches and gifts.

This will give you a realistic idea of where you are right now and what you can do to organise your finances more efficiently. No excuses for lost receipts, obtain copies of your bank and credit card statements for the past few months and list all your expenditure.

Take Action

Give yourself a financial reality check and calculate your net worth (assets (what you own) minus liabilities (what you owe).)

Part Four

Be brave and budget

It’s not boring to budget – it’s what successful people do to keep themselves on track and it will certainly simplify your life.

A budget is a plan of income and expenditure. It will tell you where you are now and will help you get to where you want to be. Your budget doesn’t have to be restrictive and it can allow for some impulsive spending. Setting and using a budget will encourage you to make conscious choices regarding your finances. Like any goal, be realistic when setting your monthly budget. It may seem like stating the obvious, but if your expenditure exceeds your income, find ways to minimise your expenses and increase your income.

Set your budget to suit your pay period and review after every pay. Evaluate your progress by comparing your actual expenses with your budget. Here are standard budget areas you may incorporate:

  • Rent/mortgage
  • Savings/investments
  • Loan repayments
  • Insurances (health, life, car, home and contents etc)
  • Groceries (separate supermarket from other food like lunches)
  • Power (gas, electricity)
  • Telephone (mobile, landline)
  • Car or commuting expenses (petrol, maintenance)
  • Big ticket items (furniture, white ware)
  • Medical (include dental checks, optometrists etc)
  • Fitness (memberships, equipment)
  • Clothing (include repairs, dry-cleaning)
  • Grooming (include beauty products, haircuts)
  • Entertainment (include dining, movies, music etc)
  • Travel/holidays (flights, accommodation, campsites)
  • Gifts (for family and friends).

Also consider your lifecycle – for example are you saving for imminent retirement, your children’s education or an overseas holiday? If so, budget for it.

Take Action

Keep it simple and write down exactly how you have spent your money over the last month, every bit of cash must be accounted for to give yourself a reality check on where you money goes.

Using the budget categories listed in this module, compile your own monthly budget accounting for all your income and expenses.

Part Five

Automate

The biggest improvements to our banking system in recent years have been the introduction of phone and internet banking.

If you are a visual person you may prefer to ‘see’ your bank balance online compared with listening to your balance on the phone. Either option you choose should offer you benefits of being able to automate. Admittedly technology is moving at a fast rate, but keep up with the advances. If you’ve always used phone banking, find an hour to look at the options available to you online. Then decide which option is best for you.

Make life easy for yourself by paying your regular bills like power, rent and telephones by automatic payment. When you reconcile your accounts and check against your budget you will be able to ensure correct payments have been processed.

Find out from your bank their current transaction fees and see if you can operate your accounts more efficiently. If you are disciplined you may decide to reduce your fees and simultaneously earn air points by paying all your bills automatically via credit card. Pay your credit card off every month and you will reduce individual transaction fees.

Take Action

Automate your money management with internet, phone banking or direct debits wherever appropriate for regular payments.

Part Six

Reduce debt

We all experience debt at varying stages of our lives, but when you decide to get smart about your money management seek advice on how you can best reduce your debt.

Choose to get out of debt and improve your financial position immediately.

Why pay nearly 20% on credit card debt when your savings are only earning 5%? While there are two schools of thought on debt reduction and savings, based purely on numbers it makes sense to use any savings on hand to pay off debt. Then you can start saving for your future.

Consolidate  your debt for a lower interest rate so you can gain control of your financial life again – especially if you have mounting debts from numerous credit cards, hire purchases, outstanding rent and overdue payments.

Take Action

Review your current debts, can you consolidate your debts for lower interest payments?

5 Tips!

5 EASY MONEY MANAGEMENT TIPS

  • Repay your credit card debt every month, this way you can utilise low bank fees and minimise high interest payments.
  • Always reconcile your bank statements so you are fully aware of fees or any errors that may occur. This is always a good way of giving yourself a monthly money reality check.
  • Save interest on loans by reducing the term.
  • Don’t be trapped by a special promotion of 12 months interest free hire purchase. Make full repayments over 12 months and there is no interest incurred, however after that time, the interest starts kicking in. Signing a contract – read the fine print!
  • Always keep an emergency fund of three months salary. This isn’t a savings fund but to be used if you lose your job or are in genuine need.