Some of us seem to be chronically short of money despite having good salaries and being (mostly!) responsible with our spending and saving habits. However, the old adage goes – you don’t know if you’re winning if you aren’t keeping score. That means taking the reins of your personal finance with a few simple guidelines. With these tips, you’ll not only have money left over for indulgences once in a while, but savings for a rainy day, retirement, and even set yourself up for real prosperity.

Together, we’ll navigate the complexities of personal finance to demystify them and make them straightforward financial habits for you and your family.

Budgeting Basics

As we mentioned, you need to keep track of your income and expenses to know where to allocate them effectively. By creating a budget – preferably a monthly budget – you can funnel your income into pools for recurring expenses while using what’s left over for saving, discretionary spending, and your goal – more on that in a little bit.

Often, people don’t follow through on their budgets because they don’t think they should. When there’s no goal, there’s no motivation to follow through on something and people lapse back into their bad habits. A budget without a goal is like playing poker without chips – there’s no real reason to keep going after a while. Why sacrifice when there’s nothing to sacrifice for?

You need to have a good purpose for budgeting, whether it’s for a long-overdue trip, a new car, or eventual homeownership. Despite how absurd it may sound, saving today will help you spend less later. (It’s true!) Maybe your dream holiday abroad is more attractive than a t-shirt you found or a new video game that’s just come out (which is upwards of $100 in some cases!)

Living in the information age means information can be collected and collated at our fingertips. Your bank’s NetBanking app will likely (if you’re with one of the majors) have in-built spending tracking and budgeting software bundled in, and will start tracking once you configure it correctly. You can also download other apps that connect to your bank account, such as You Need A Budget. Once it’s set up, it’s simple to follow.

Building Your Rainy-Day Fund

One day your car may break down, your fridge goes kaput, or you break your finger (maybe under the car bonnet in frustration.) This leads to an urgent, unavoidable, and substantial expense that threatens to throw your entire budget out of whack.

Analysts and financial experts say that you should aim to have at least two to three months’ worth of expenses saved up – you may lose your job suddenly and need to cover these costs until you find alternative employment. For the self-employed, this may need to be larger to cover shortfalls in work contracts. Another way to gauge how much your fund needs to be is to look at some of your (older) appliances in the house and calculate how much it would cost to replace if it suddenly died.

You can set up a rainy day fund by putting left over money in your monthly budget into a high-interest savings account or ETF (exchange traded fund) to ensure it earns healthy returns and is relatively difficult to access on a daily basis, unlike your savings or chequing accounts.

When you have a sizeable fund, you can skim off the top once in a while for your holiday fund, home deposit, or new big-ticket item.

Wrangling Your Debts

One of the biggest choke points in financial growth is debt. People go into debt for good reasons, such as buying a car, taking out a home mortgage, and buying assets that will help them earn more than they’re paying on the loan. However, we also go into debt for frivolous reasons, such as putting fancy meals on credit cards and failing to pay them back in time.

Using the debt “avalanche” or “snowball” method is an effective way to scale back your debt. It means concentrating on paying off your highest interest debt first, followed by the next highest, and so on. It can reduce your interest charges substantially.

You may also want to consolidate your debts. You’ll have to seek finance – a personal loan – to wipe out your smaller debts in one fell swoop. From then on, you can cancel unnecessary credit cards and leave one, low-rate card with a modest spending limit for emergencies instead. The wise financial mogul Jay-Z (he isn’t poor, is he!) once said “if you can’t afford to buy something twice, you can’t afford it.” Use that maxim in your spending habits and you’ll avoid unnecessary credit charges.

Investing and Saving for the Future

Unfortunately, money in the bank isn’t a long-term investment strategy. Interest on deposits rarely outpace inflation, which has become starkly obvious during the post-COVID inflationary era. You need to enlist the help of a financial adviser to help you invest in capital growth and income securities, such as stocks or shares, bonds, managed funds, and superannuation. Adding personal contributions to your superannuation may also be matched by the government and is an end of financial year tax deduction – a win-win. You can maximise these savings and growth by taking advantage of automatic transfers into your ETFs or super accounts as a part of your regular budget.

Remember – education is an investment as well. Spending money on financial advice will return well more than the price of purchase; as will investing in your ongoing career development and education. Remember to weigh up long-term investments over short-term liabilities (items or services that don’t make you money.) Though you may be reluctant to buy a new car despite your old one still “working”, a new car is an investment in reliability, lower maintenance costs, lower fuel costs, and you and your family’s safety. Don’t just look at the price – look at the overall cost and whether it will make some measure of return or improvement on your life (what price is your health?)

With all this in mind, you can start managing your money instead of it ruling over your life!