Like many people, January is for me the most optimistic month of the year. The new year is rich with promise and possibilities: when wrongs can be made right and it anything is achievable. Whilst many resolutions focus on our health, relationships and environment – here are five modest promises to make to yourself that will help you make 2013 the year you get on top of your money.
1. Find a Real Goal It can be difficult to change behaviour if there isn’t a guiding purpose; a goal creates motivation and motivation is the fuel of success. Therefore central to improving the way you manage your money is to have a goal, and importantly, a goal that you seriously desire. The vision of a week relaxing in Phuket, buying a Vespa, or saving a deposit for your first home makes it much easier to find that extra $50 in savings each week, as well as tightening up your discretionary spend.
2. Pay off your Credit Card … Completely If you have a credit card debt that you can’t clear down to $0 each month; you have a debt that is sapping your life force! There are many reasons to focus on clearing credit card debt, but for me, the biggest is that such debt symbolizes you have lost control of your cash. So regardless of how much you earn, how senior your job is or how fabulous your friends and family think your lifestyle; is if you have credit card debt you are a slave to your credit card provider.
3. Build and Maintain a Cash HubA cash hub is a savings account – maintained at a fixed level (for some its $500, for others is $5,000). The hub needs to be accessible, sits in a high interest account – parked separately from your regular savings/expenses activity. This hub exists wholly for the purpose of responding to unexpected expenses – imagine cash sitting behind glass ‘in case of an emergency’. If an expense arises that you hadn’t budgeted for, say your washing machine breaks down or you need emergency dental work, then you access some of the hub money rather than borrowing from your credit card or dipping into your savings. If it is accessed, then restoring the cash hub becomes a priority in your cash management activity.
4. Create and Use a Budget A budget is the guiding light that helps you control your money. It is the vehicle to help you achieve your goals, a reference point to gain quick understanding of where you sit financially at any point in time, and a reckoner to help you understand the implications if you tweak your spending/saving plan. Many people have told me how they can manage their money without a budget – but I’m confident that you can achieve, and save much more with a budget. Budgets can be as detailed or as light touch as you need, but they are also a source of inspiration and ‘a truth’ as you go about managing your money.
5. Track your spending Whilst this recommendation applies to everyone, tracking your spending is especially relevant to those who allocate an amount to discretionary spending, without identifying where the cash goes. By tracking your spendyou may learn that you spend more money on coffee than you do on electricity. Carefully tracking your spending will tell you about prioritiesyou didn’t know you had. You value what you measure and if you learn how much you could save annually by, for example, not buying lunch every day, it can impact your spending behaviour.
All the very best for a happy and financially successful 2013!