It might sound incredibly basic, but getting control of your money is about spending less than you earn.
Boring, hey? Wouldn’t it be fun to buy a new car, a new flat screen TV, the latest and greatest smartphone, to take a 3-month European holiday, and to get that brand new kitchen you’ve always wanted?
Of course it would. But if you consistently spend more than you earn, it doesn’t take a rocket scientist or indeed a Fool to work out you’ll more than likely end up in the Poor Farm. You may have lots of material possessions, a few memories, but ultimately nothing to show from it.
It sounds boring, we know, but let us show you how saving, and not just spending, can be a whole lotta FUN.
Remember we introduced you to the miracle of compound returns in Step 1? Well, miracle of all miracles, if you used the money you saved each week or month to fund savings and investments, you can get the miracle of compound returns working for you. From modest beginnings, you too could accumulate serious wealth.
Now you’re talking, Fool.
You should aim to spend less than you earn each and every month. If you already do this, you’re well on your way to gaining control of your money – you just need to get the money you’re not spending to start earning interest.
Do this by paying yourself first: set up a regular direct debit or BPAY® into a savings account just after pay day and put that money to work right away so you don’t get tempted to spend it elsewhere.
If you don’t spend less than you earn, don’t worry. Most of us need a little help getting control of our money. In fact, those of us who barely make it from one pay day to the next need to start with basics: budgeting.
Budgeting – the key to a healthy bank balance
Budgeting is neither as scary nor onerous as it sounds. To start, make a list of your regular bills and how much they cost you each month. This should give you a good idea of your main areas of expenditure. If you’re not sure where your money’s going, keep a spending diary: for one month, make a note of everything you spend, even if it’s $2 for a chocolate bar. At the end of the month, tot it all up to see how much you spend and where you spend it.
Once you know your outgoings, it’s time to start trimming them. Often there’s no need to cut back on the things you enjoy, but rather to get better value for money for the stuff you have to get anyway. If you’re spending far in excess of your income, you will need to take more drastic steps, but for most of people, a trim should do it.
Trimming the fat – the same products for less money
Start trimming your outgoings by reducing one major bill each month, prioritising the bills you pay on a regular basis, as with these, one phone call could lead to sustained savings. Most people can save hundreds of dollars, if not more, just by making a couple of switches. You shouldn’t have to look too hard, either…
Changing your mortgage, savings account or credit card is often one of the easiest ways to generate some surplus cash.
These days, you’re likely to have at least one mobile phone bill, a landline bill and an internet bill. Together, they can easily add up to $300 per month, making communication your second biggest bill, after your mortgage. Shop around for a better deal. Compare plans on the internet. Haggle with your existing providers. There is big money to be saved.
If you’re a driver, you can probably save a packet on car insurance by switching to a cheaper provider. Women drivers and drivers with clean records can stand to save the most here.
Fancy a break? However and wherever you’re making tracks, you can save at least the price of a meal by shopping around before you buy. With dozens of online resources dedicated to finding the cheapest fare, accommodation, excursions, and breaks, there’s just no excuse for paying too much for your holiday fun.
A final note on getting control of your money
Getting control and keeping control are different things, and there’s no guarantee you won’t fall off the straight and narrow at least once. When this happens, just take stock of why you fell – so you can learn from your tumble – and calmly and proudly climb back on the horse.