Want to travel? You have to save.
Want to start a business? You’ve got to cut back on spending and get really good at tracking where your money goes.
But so many of us just don’t know how to deal with our money. Money management isn’t something we got taught at school. And, at least in Australia, many of us are reticent to share our financial goals with our friends and family.
Being able to manage your finances is a skill. And it’s something you can learn to do.
While we may encourage you to look beyond purely the financial goals towards your purpose (because your purpose shouldn’t be to “get rich” or “become a millionaire”), we know that money is often the base from which your goals grow.
Here are our tips to help you start managing your money better.
Know your worth
Can you rattle off the current stats of your AFL team (or, for the less sporty among us, your Pokemon Go numbers)? But don’t know how much cash you have in your bank account right now?
The first part of managing your money is knowing where you currently stand. The value of all your accounts and assets. And how much you owe to the bank, lenders, and even your friend who’s shouted you a few too many rounds at Friday night drinks.
Sit down with all your current statements and add up all your assets, then subtract all your liabilities. What’s left over is your current net worth.
If you’re young, it’s likely this number is pretty small. But what matters is the direction it’s heading.
And if it’s negative? It’s time to hustle, clear your debts and build up some equity so you can go after those big financial goals.
Know where your money goes
Does this sound familiar: you pull out a $200 from the ATM on a Friday night for your weekly spending. But come Sunday afternoon it’s all gone and you have no idea what you spent it on.
Being aware of where your money goes is essential to good money management. After all, if you don’t see it, you can’t manage it.
Download your most recent bank statement and go through each transaction, line-by-line from your last payday until now. Are there transactions there you can’t even remember? A bunch of withdrawals for cash that you now can’t account for.
Then grab yourself an app and start tracking your spending. This isn’t an tut-tut, look at what you’re buying thing. Just like great a listing can help you keep track of what you need to do, tracking your spending will just make you more aware and, ultimately, more focused on spending in line with your goals.
Create a budget
Budget isn’t a bad word, but lots of people treat it like it is. But a budget is actually the best way to make sure you’re spending less than you earn, and you’ll have money in the bank for those big, irregular expenses.
There are a heap of budgeting methods, spreadsheets and apps out there. We suggest researching a few and picking one that works best for you (whether it’s an app, a notebook or fancy online system). Whatever you choose, find something simple and commit to sticking with it for at least 60 consecutive days.
Have some financial goals
It’s important that you’re not just focusing on your finances today, but you also have some goals for your financial future.
Depending on your age now, retirement is probably 30 or 40 years off (and feels like a lifetime away). But the sooner you start, the bigger an impact you can have.
Start thinking about what your big financial goals are. Do you want to buy a house? Retire while you’re still young enough to travel? Start a business or a family (or both!)?
Figure out what you want and how much it’ll cost you. Then start working towards making those dreams a reality.