Welcome back to a brand new year. If you’re like most Australians, you’ll be using the change of calendar to review your life and think about what changes you should make. Drink less. Exercise more. Eat better. Change jobs.
They’re all worthy goals, of course, but what about your finances? If that sounds less exciting than dropping a size or getting that dream job, you’re right, until you consider just what revamping your finances can bring you.
Want to go on holidays? Buy that new television? Have a cruisy retirement? Donate more to charity? Those are the tangible benefits of getting a little financial fitness. And new resolutions shouldn’t just be a list of new things to do – so here’s a mix of things to start doing, but also a couple to just stop.
Start making a budget Doesn’t sound very exciting, does it? But it’s immensely powerful. Planning – ahead of time – what you’re intending to spend and on what things gives you control. It’s a form of self-discipline. If you decide where your money will go, it gives you a reason to say “no” when the impulsive parts of your brain tries to tell you to buy that new phone, dress, game or pair of shoes. Being able to say (to yourself) “I don’t have the money for that” is the angel on your shoulder that’ll keep you on the straight and narrow.
Start tracking your spending The human mind is a complex beast – but also deceptively simple. In business, there’s an old saw: “What gets measured, gets done”. In our own lives, what gets recorded gets noticed. Whether you use a phone app, your bank’s own internet banking feature (if it has one) or a piece of software specially designed for the purpose, you won’t believe how impactful just knowing what you’re spending can be. It can be confronting – “Did I really spend that much on eating out?” – but you’ll be amazed at how quickly you start changing your spending behaviour.
Stop paying too much Our company gives every employee a “personal finance day” – a day of paid time to get our personal finances in order. Your business may not do the same, but you can still find time to do the simple things that’ll make a difference. Go through each bill – phone, mobile, electricity, water, house insurance, car insurance – and call around for a better price. Then call your provider and ask them to match it. My mortgage provider took 0.2 per cent off my mortgage after a five-minute phone call. That’s the equivalent of $60 a month on a $500,000 mortgage – every single month, thanks to one call. Most people who read this article will skip this step – don’t let it be you.
Stop: Keeping up with the Joneses New cars, new boats, new televisions. Holidays, clothes, gadgets. It’s very tempting to want what others have. But if you resist the urge, they’ll end up being envious of what you have – a comfortable retirement. Let me put this another way. You can spend $100 today, or you can invest it and in less than 20 years (at 12 per cent) get paid $100. Every. Single. Year.
Start: Investing You’re not going to get rich with money in a transaction account paying you no interest, or a term deposit paying only a little bit more. Investing can be risky, but done well, it’s less risky than not investing at all. Invest in yourself – get better at your job (or another job) and earn a pay rise. Invest in your knowledge – understand what makes businesses tick and what separates the good from the bad. Then invest in quality companies at good prices.
If the past three decades tell us anything, it’s that a diversified portfolio can be a wonderful way to build your wealth. And the more you can save, the more money you can put towards building yourself a sizeable nest egg.
Happy New Year!
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Scott Phillips is a Motley Fool investment adviser. The Motley Fool’s purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691).