You don’t need to be a math whiz or financial expert to handle your money with confidence. If you’re unsure about your ability to manage your own money, you’re not alone. In fact, a long-running study of over 17,000 Australians discovered that only 35% of people could answer simple money management questions correctly.
If your financial situation is spiralling out of control and your credit cards are maxed out every month, your financial goals can seem frustratingly out of reach. The good news is that with a little planning, you can take back control of your finances. It’s time to start working towards getting out of debt and reaching your goals. Here are the 6 steps to becoming a better money manager.
1. Setting Clear Financial Goals
Managing your finances should be a positive experience, but you need to know where you’re going. Just like how you shouldn’t go to the grocery store without a list or weekly recipes in mind, you shouldn’t start your financial journey without clear goals.
Start today by setting realistic goals. You might want to get rid of your debt and build some savings. Perhaps you have something more specific in mind, like a house deposit, your children’s education, or an overseas trip. Whatever your goals, write them down and begin tracking your progress.
2. Face Your Debt Situation
Before you can devise a plan of attack, you need to know exactly what you’re dealing with. Put together a thorough list of all your debts, including credit cards, personal loans, unpaid bills, and so on.
At this stage you may want to check your credit file. This is a detailed credit report on your financial history, including your debt repayment record. Knowing your credit score and history will help you identify patterns in your financial behaviour.
Once you understand your overall position, it’s time to take a look at the nitty gritty details. Keeping a spending diary can reveal just where your money is going each month, or you could use a money tracking app. Facing your spending head-on can be intimidating, but it’s also a huge step forward.
3. Identifying and Admitting the Problem
The saying “know thyself, know thy enemy” is never more true than when it comes to money. Perhaps you are prone to impulsive spending, or maybe a number of small expenses are adding up. Alternatively, if you are running a few different credit cards, the combined interest bill could be draining your cash. It’s important to pinpoint the behaviours and habits involved so you can make positive changes.
It’s also vital to establish whether or not you have sufficient income to service your debts and expenses. When expenses exceed income, you may need to seek the help of a debt relief service. It may feel like an impossible situation but you can turn it around with professional assistance and a good amount of determination!
4. Make a Budget and Stick to It
Once you’re completely aware of the financial situation, you’ll be in a better position to take control of your household spending. Creating a budget will help you get a clear view of your income, expenses, debt repayment, and whether you need to make any adjustments.
In a perfect world, your budget will cover not only all essential expenditures, but also your debt repayment. To achieve this, you might need to his might involve cutting out unnecessary items like takeaway coffees or rethinking your entertainment budget.
To make this easier, recruit your friends and family into this process. Let them know you’re sticking to a new budget to become a stronger money manager. Enlist them to help you stick to your goals and hold you accountable.
5. Consider All Debt Solutions
Sometimes these steps above aren’t enough on their own. It’s okay to need a bit of extra help to get things moving faster. In fact, some debt solutions might even help you save money in the long run.
For example, you have a number of credit cards, personal loans, and unpaid utility bills, you could also be incurring interest payments, service fees, and late payment charges. A solution such as debt consolidation or debt agreements may be an option. You may also be able to access special hardship options with some credit providers if you’re really in a bind.
Exploring your options to make sure you have the best deal when it comes to your credit card interest rate or utility bill are also types of debt solutions. It pays to be a bit creative!
6. Save an Emergency Fund
Finally, you’re not truly a personal money manager until you’ve saved yourself an emergency fund. What is an emergency fund? You can think of it as a safety net. It’s funds kept separately from your transaction account that are there for a rainy day. It’s not to save towards a goal or to help you pay off debt. It’s simply there in case of emergency.
You can’t anticipate what will happen in the future. You might need to pay for car repairs or you could lose your job. While nobody wants to think about these things happening, it’s better to be safe than sorry. Having an emergency fund to draw from will keep you from relying on debt to get out of these binds. One financial emergency shouldn’t spell disaster for your budget.
Make Your Finances Work for You
Your money should work smarter, not harder. If you’re feeling overwhelmed by what steps to take first, remember you can take this process slowly. Any step forward is a step in the right direction.
These steps above help you better manage your money and pay down your debt, but if you’re feeling overwhelmed by debt and need debt management advice, we’re here to help. We’ll review your personal circumstances and tailor a solution that works for you. Contact us today for an obligation-free discussion about your finances. You can start an online chat with us now, call us on 1300 368 322 or fill in the contact form below.