My New Year’s resolution was to finally clear some debt and get my finances in order but I’m already falling back into bad habits. Buying coffees, eating out and spending more than I earn. How can I ensure that this is a resolution I can stick to?
Many of us treat our bank accounts like the tide. Money comes in, it goes out. If the bills get paid and we have a bit left over, we think we’re riding the waves just fine. That may by true but what happens when that inevitable financial tsunami hits? It may not be anything as serious as death or redundancy. It may just be something like the ongoing cost of living crisis for example.
Budgeting is one of those things we know we should do but end up avoiding because it seems too hard, too boring, or just plain miserable. A budget is telling your money where to go, not wondering where it went. It’s about future planning.
Making a budget is about freedom not restriction or punishment. It’s shouldn’t be something you do only when things go bad. It’s more about the freedom of finding out where your cash is going and redirecting it towards helping you do things you’d like to do. It needn’t be about cutting back. It’s simply taking control of your money.
Having a clear picture of where money goes after income comes in is the first step to getting on top of things. The discomfort is temporary but the benefits from the knowledge you gain can be permanent. It can be as simple as noticing frequent spends on takeaways because there’s never anything nice to eat in the fridge.
Have a look at your spending last month and write down all the bills and direct debits, the things you must pay every month to live. You can track your spending by going over your statements with a highlighter and putting them on a spreadsheet or writing them down manually on paper or instead of tracking backwards, you can keep a spending diary for a month.
Please see my simple 5 step plan below.
1.Draw up a balance sheet
A balance sheet contains your assets and your debts. After you’ve drawn up a list of all of yours, subtract your debts from your assets. This will give you your net value. This exercise is something you should do every year to see whether your net value is increasing. For a free template please see https://www.sefs.ie/contact-us/
2.Give yourself a budget
The idea of giving yourself a budget might be unappealing, but it’s essential. This exercise will help you to work out where you are with your finances. By working out where you spend your money, you’ll be able to eliminate expenses that provide you with the least amount of satisfaction, thereby improving your financial situation.
3.Pay off your debts
Do you currently have loans or credit-card debt? Did you know that the typical APR rate for credit cards is over 22 per cent? That’s a significant dent into any future revenue. The answer? Come up with a plan for paying off your debts. Start by paying off those with the highest interest rates, and once they’re completely cleared, move onto the rest.
4.Avoid impulse buys
Don’t spend beyond your means or your needs. Make a list before you go shopping and never buy anything on impulse. Are you especially tempted by something in particular? Take a week or two to think about it before buying it.
5.Save
Debt can pile up very quickly, so maybe it’s time to rediscover the virtues of saving. Try to systematically save 10 per cent of your net income to create some working capital for yourself, and then an emergency fund. This way, if anything should go wrong, you won’t need to get into debt to make ends meet.
If you’ve resolved to sort out your financial situation talk to a Financial Broker or other professional.