Organize Yourself Rich – It’s Easier Than You Think
Getting ahead in life is a two-strategy game. Yes, you need your income, which is your offense; but you also need to play good defense to limit the damage from your outgoings. Most of us are very focused on the income side of things; but not everyone has discovered the value of playing close attention to your outgoings, and playing a good defense.
If you want to get ahead in life, you need to know your balance sheet. Try thinking of your household more like a business. If you want to stay in business and get ahead, then what comes in should be greater than what goes out. If more is going out then coming in, you could soon find yourself with a growing debt. If you want to take the worry out of your finances, then why not do what wealthy people do and be the boss of your own money? No matter what you earn, anyone can be in control of their finances, and being in control is the key to getting out of debt and building savings.
You have probably heard about household budgets, and if you don’t already have one it’s a great idea to make the time to develop one. A good detailed household budget will really show you where your money goes. Once you know where it goes, it is so much easier to have a strategy to reduce the outgoings and to increase your savings.
You probably think you know where your money goes, but when you finish your detailed budget, the chances are it will surprise you. This is because many of our small, day to day, purchases are made without much thought.
For example, did you ever think about what greeting cards cost you each year? The average card bought in a newsagency or supermarket is probably about $5 – and on average households buy about 55 cards year. That is $275 a year right there. Consider buying your cards from discount stores – often $1 to $2 a pop and you could be saving an extra $150 plus per year – or better yet, make your own.
Find those kinds of savings a few times throughout your budget and you are beginning to see the benefit in knowing exactly how you spend and where you spend. Then by making small adjustments you can really help yourself out of debt, and even begin to create a nice little nest egg.
It might take you a few hours, but the time spent creating your budget will be time well spent. Once you have developed a budget it becomes a great template that you can keep using year on year with only minor adjustments. The budget can be as detailed as you like; but the more detailed the budget, the more likely you will be able to see areas where you could cut costs and make savings.
Use your old household bills, receipts, bank records etc. to estimate what you are spending per month on each area of household expenses. Where you aren’t sure (e.g. groceries) an estimate will be enough to get you started. In your budget, do not forget to include your expected income for the year. Then you will have a comparison of what is coming in, and what is going out. If more is going out then coming in, you will want to look for where you can make savings. If there is a surplus, great, but either way, create a line for savings and budget those in too. If you already have a surplus, it is good to look at further areas where you may be overspending, so that you can cut back and grow that surplus.
Households have different expenses, but here are a few examples of what might be in your budget: rent/mortgage; insurances; gifts; donations; phones; utilities; groceries; alcohol; clothes; toys; beauty; furnishings; hardware; transport costs; bank fees; school/study costs; eating out/fast food; health; lotteries; entertainment. Don’t forget to include a line for savings, even if it is a small amount, it is good to start thinking about savings as part of your budget.
Creating the budget is only half the task, you also need to acquit your budget. A budget is essentially an estimate, so acquitting your budget really just means reviewing whether your estimate was right. It is probably easier to acquit monthly while expenses are fresh in your mind. You will need to do is keep good records of what you actually spend – receipts, bank statements etc. and then check those against what you estimated. Acquitting will help to keep you on track to stay within budget or to make further savings; and it will help you to create an even more accurate budget the following year.
Have you heard of bill smoothing? Below are examples on how it works.
Another great tip for managing your money is to set up direct debits for all your bills. Your budget will also be a huge help with this. You can usually set this up through internet or telephone banking or directly through your bank branch.
To stay on top of your bills and to avoid bill shock with a big end of month bill, it can really help to put aside the portion of all your bills as soon as your money comes in. For example, if you are paid weekly and you know from your budget that you are spending roughly $30 a week on electricity, you can pay that $30 immediately by direct debit. This breaks your expenses up into smaller, and easier to digest, amounts (bill smoothing). Do this for all of your bills on the same day you are paid – then you will have the confidence that your bills will be paid on time, you won’t have a “bill shock” and you can spend what is left without guilt or worry.
You might also want to pay slightly more than the expected amount – this will help you to really get ahead on your bills and to know that there will definitely be no balance owing by the time the bill arrives. Imagine what a great feeling it will be to get a bill and see that nothing is owing – that it is fully paid for before the due date– and is maybe even a little ahead!
*An added benefit of this system is the ability to develop a great credit profile as somebody who is never late or unpaid on their bills! That can really help later if you apply for loans or credit.
Note: Some businesses (e.g. health insurance) might not let you pay by direct debit on your own schedule. They might have their own (e.g. 1st of the month direct debit). You can easily get around this by setting up your own bank account that is specifically for “bills and expenses”. That way you can still transfer the weekly portion of that expense and set that up as the account that your billers will draw from. Try to treat it as an account that you never dip into, and you will soon take the stress of bills out of your life and find yourself truly living within your budget.
Getting in control of debt is about getting your self organized. A budget and direct debits are great tools that can help you to manage your money, free yourself from financial stress, and finally get ahead.