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5 tips to take control of your finances

Glenn Fairbairn
Director/Private Client Adviser
26 Sep 2017

Financial freedom – we all want it but how do you achieve it? Financial advisor, Glenn Fairbairn, demonstrates it’s not how much you earn. It’s how much you spend. 

Here are 5 simple tips to take control of your finances:

  1. Establish a BUDGET and track expenditure
    You will never be able to control your finances without knowing what you spend. The best place to start is to review your past 12 months of expenses. Although this can be a daunting task, most of the banks now provide online tools that can give you the information you need at the click of a button. There are also heaps of free budget tools available online to track expenditure. The Money Smart budget planner provided free by ASIC is perfect.
  2. Divide EXPENSES into needs and wants
    Some expenses are NEEDS i.e. food, household running costs, rent, loan repayments while other expenses are WANTS i.e. clothing, entertainment, etc. Wants are luxuries. Dividing your expenses into these two categories will enable you to highlight areas of excess, which is necessary for Tips 4 and 5. 
  3. ESTABLISH an expenses account 
    There is nothing worse than when a large expense arrives in the mail and you don’t have the cash to pay for it.  This forces you to use your credit card and here is where the vicious cycle begins and you constantly feel like you are chasing your tail.

    By establishing an “Expense Account’’ and allocating sufficient funds to this account every pay period you should never be in this position again. My suggestion is to establish two expense accounts: one for NEEDS and the other for WANTS. For example, if you are paid monthly and your total expenses add to $50,000 per annum ($40,000 for NEEDS and $10,000 for WANTS) you should direct $3,330 per month to your “Needs” Account and $830 per month to your “Wants” Account. 

    Once this is up and running, you should always have sufficient funds to cover your essential living expenses while knowing if you can afford luxuries i.e. if your “Wants” account has been depleted then that may mean some delayed gratification. 

  4. REPAY debt ASAP
    One of the greatest strains on your personal cash flow will be servicing debt. The sooner these debts are repaid the sooner you can take hold of your finances and potentially shift your focus to longer term wealth creation.  If possible, look at refinancing high cost debt like credit cards and personal loans with lower interest loans. This will reduce your interest cost and speed up your repayment.

    Repaying debt quickly may mean a little short-term pain and you should take a good hard look at your “Wants” and maybe sacrifice a little.

  5. LIST your financial goals and prioritise 
    It’s hard to get anywhere if you don’t know where you’re going. List your short (within 12 months), medium (1 to 3 years) and long term (3 years+) goals, then prioritise from most important to least important. The next step is to determine what the financial cost of each goal is and work backwards to calculate what commitment is required from you each pay period to achieve that objective. 

    You can then set up three new accounts named, for example, Short Term Account, Medium Term Account and Long Term Account and have funds automatically directed to these accounts each pay period. Or get creative and name your accounts after goals i.e. “Holiday Account’’, “House Deposit Account”, etc.

    Once this exercise is complete, you may find that all the financial commitments required to meet your expenses and achieve your goals is greater than your earnings. This is where compromise and prioritisation comes in.

The above budgeting process may look a little like this:

budgeting plan image

Budgeting may seem boring but you can make it easy by setting up the automatic debit transfers from your salary to different bank accounts. And when you do this you’re one or two steps closer to achieving your dreams – be it a European river cruise or saving for a house.

Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.