Learning how to manage your money can seem like a daunting task. Many of us have spent years hiding away from the accounting, reluctantly looking at our receipts and feeling disappointed with our expenses at the end of the month. Saving for a home deposit has been harder than ever, with rent affordability rapidly declining throughout Australia.
But perhaps the idea of budgeting is an issue in itself. Perhaps you shouldn’t be looking at it at budgeting, but rather, managing your money. Grant Sabatier, a billionaire notorious for retiring at 30 once said, “”Budgeting is a lot like dieting: the more guilt you feel, the less likely you are to stick with it”. And what happens is you end up giving up.
He argued that budgeting can instil a “scarcity mindset”, making you feel deprived instead of encouraging you to take a proper look at your finances and make a change.
So instead of a long list of budgeting tips, today we’re going to tackle ways to manage your expenses so you have more control and hopefully, more money to put towards rent or a home deposit.
1. Set up the right bank accounts
A simple way to start organising your finances is to make sure you have the right bank accounts set up. Bank accounts are like rooms in a home—while they all fit together as a whole, each one has its unique purpose.
So begin with three bank accounts: checking, saving and investments. Checking and savings are separated so you can better divide your spending cash from any savings you’re hoping to build up. Don’t make the mistake of having all your money in your checking, only to dip into your savings unintentionally.
Thirdly, you want to have an account that will grow over time. Investment accounts will hold any of your cash investments, be they stocks, bonds or cryptocurrency. They also have varying interest rates to support the growth of this money.
2. Take stock of your current financial situation
For some, this may the hardest step, but if you want to start properly managing your money, it has to start with a cold, hard look with your financial situation. A few questions you can ask yourself are:
- Do I have any outstanding debt?
- Do I struggle to handle my credit card bills every month?
- Is my credit score preventing me from making plans?
- Am I spending on things that really matter to me?
- Do I have bad spending habits? What frivolous or compulsive expenses do I make?
- What is difficult about taking action to save more?
- Can I increase my income in any way?
3. Make a plan for your money
A plan puts everything in place and gives you a goal to strive for. Many fall victim to the “treat myself” habit as a form of self-care, sometimes extending to treating others at drinks or dinner. But over time, the everyday expenses add up and put a dent in your bank account.
Identify what you want to focus your spends on. Obviously start with the necessary—housing, food and transport. Then what else you deem necessary for you to live well. This might sound like budgeting, but it’s really more focusing on the right things to spend on.
4. Set the right financial goals
Let’s say you are struggling to make rental payments each month or you’re ready to settle down and want to save up for a home deposit—these are all financial goals. Once you have a “finish line” in place, you will likely stay more focused.
You can have more than one goal, and can categorise them into short-term, mid-term, and long-term goals. Making rent would be a short-term goal, and you should use your savings account for these types of goals. Any extra cash that comes in should go directly into your savings account.
Apps like Wisr round up every payment you make and put that extra directly into your savings. Wisr states that users end up with an average of $100 extra to pay off debts or rent payments.
Saving for a home deposit is a mid-term goal that averages about 2-5 years. Investment accounts come in handy here as well as a schedule you must stick to. There are different types of accounts to choose from but term deposits are the safest and most common. The longer you keep your cash in there, the higher the deposit. There’s usually a penalty for taking the money out earlier too so it’s hands off for now!
Or maybe your goal is an emergency fund or a retirement plan. While these are tempting to leave by the wayside, you’ll be more focused if you remind yourself why this particular goal is important to you. Create bi-annual check-ins with reminders so you can assess where you’re at. Don’t be afraid to change strategies throughout the process.
5. Check-in with your finances every day
You can’t make progress without knowing where you stand because you won’t know where to start. Take five minutes every day to check in with your budget. Are you overspending? Are you right on track? It’s important to know because then you can make adjustments where necessary.
Raiz is an app that tracks your spends and divides them into different categories, like utilities and food, so you know where everything’s going. For a small monthly extra, you can also use their investment tools which are their primary selling point. They allow you to invest predominantly in EFTs. The idea is to make this process as simple and effortless as possible, so it doesn’t feel like work.
6. How to manage your money by cutting back on expenses
We said earlier that we wouldn’t get into budgeting tips and we meant it. Cutting back on expenses will naturally give you a budget. Once you’ve decided where your unnecessary spends are, it’s easier to cut them out.
The most common over-spending we see is on dining out, clothing and those flat whites on the way to the office. While they make us feel good initially, they appear later on our credit card like discovering a hole in our wallet. Looking for low-cost options is a good starting point. Flatmates can also benefit from shared subscriptions and other ways to save in a shared house.
7. Take a look at your income
Often when we are attempting to manage our money, we forget to look at the source—our income! We’re so concerned with the money going out that the money coming in gets neglected. So take a moment to assess your salary after taxes.
Are you content with that number? Or are you willing to pick up more work for extra spending money? You might already have a full-time job, but a side gig or freelance work can add to your earnings and help you work towards your money goals faster.
8. Build up knowledge on how to manage your money better
The more informed you are on how to manage your money, the safer you’ll feel about it. Everyone is in the same boat, which means there’s a plethora of digestible financial resources for you to choose from, podcasts being one of our favourite ways. Hearing stories from others allow us to make little adjustments in our lives that make all the difference.
Soho is always on the lookout for efficient ways to reach your property goals. Keep yourself updated with useful tips like these by getting registered on Soho. Not only are we finding you your dream home, but we’re also helping you save for it and decorate it! So don’t forget to swipe on your property matches so we can get you there faster.