Money is a touchy subject for a lot of people.
You hear it all the time “money can’t buy happiness”…
This may be true, but it’s pretty difficult to be happy when there’s a lack of it.
Even if you aren’t “struggling” financially, poorly managed money can create a lot of problems…
Mortgage payments begin to stack up…
Credit cards continue to accrue more and more debt…
Your expenses begin to outweigh your income…
Stress starts taking a toll on your health and relationships…
And without proper planning, you could be looking at a retirement that is dependent on a government pension (which everyone knows is going to be non-existent by the time we reach retirement age).
That’s a heck of a way to find happiness huh?
Well if you’re feeling “stuck” financially, this article will show you how to get control and reduce the amount of money falling off the table that should be yours.
There are four things you need to do:
- MAKE money
- SAVE money
- GROW money
- PROTECT money
Some of the strategies may not be pretty, or easy to do, but they are all proven. So if you’re committed to achieving financial freedom and put in the work, you will see results.
1. Make Money
Increasing your income comes down to two steps:
- Enhance your earnings
- Budget your income better
Ask for a Raise
It’s scary to ask for more money, but the worst thing that can happen is that you get a “no”. If you can’t remember when your last raise was, then it’s definitely time to start pleading your case.
Of course, you can’t simply demand extra pay. There’s an art to getting a raise.
Most importantly, you’ll need concrete evidence showing how you add value to the company.
Pay raises aren’t a subject your boss enjoys discussing. But if you approach it correctly, it doesn’t hurt to at least put the bug in their ear. Simple fact: no matter how great your employer is; no one wants to pay employees more than they need to. So if you never ask for a raise, you’re unlikely to get one any time soon.
If you’ve demonstrated that you deserve to be paid more by being valuable, at least ask.
Become More Valuable by Acquiring New Knowledge
Education can play a big factor in how much you can earn. If it feels as if you’ve topped out in your pay scale, it may be time to pump up your credentials.
First, figure out if the expense makes sense. If your current position won’t benefit from additional schooling, it may not be the best strategy. But it might be worth pursuing if you plan on applying for a different position altogether.
If going back to school doesn’t make sense, there’s probably other options available. Depending on your current degree and career, there may be industry specific training programs or professional certifications to consider.
Again, talk to your employer. Find out what positions are open and what credentials they’re looking for. Companies generally like to promote from within so if you’re willing to put in the extra work, they may be willing to reward you for it.
Just about every person reading this has worked two jobs at one point. In the past it was probably only something you did out of necessity.
But a lot of people are turning to freelance employment, at least in a part-time capacity, to supplement their income and be able to save more, or just to have more money to enjoy.
From writers to graphic designers, virtual assistants to accountants; if you’re good at anything then odds are there’s a freelance opportunity waiting for you online.
Check out websites like Upwork, Freelancer.com, or Airtasker to get started.
Most adults suck at setting a monthly budget for themselves. In fact most people don’t even do it.
With the number of tools and apps available, creating a budget, managing your personal finances, and becoming aware of your spending has never been easier.
Cutting out unnecessary expenses may be as simple as going out to eat less, or carpooling with coworkers.
It’s important to understand that in order to gain clarity on which direction to go in, you have to know where your money is going first.
2. Save Money
Saving more money also comes down to two steps:
- Reduce waste
- Plan better
Save Thousands by Shopping Around
Even after you buy a home, pay attention to mortgage interest rates. Look out for refinancing opportunities that could save thousands of dollars over the life of your loan.
You should also regularly review your insurance premiums and memberships too. A regular review will make sure that your rates remain as low as possible, so you can pocket the extra cash.
Eliminate Your Bad Debt
Avoid paying unnecessary interest. A debt of $10,000 on a standard credit card could cost you $2,024 per year in interest. That money could be going towards your future goals.
You need to put together a plan to pay off your debts.
Here’s an example:
- In a spreadsheet, list your debts starting with the debt with the highest interest rate and finishing with the debt with the lowest interest rate.
- Put as much as you can towards paying off the card or loan with the highest interest rate, while still continuing to pay the minimum on the other debts.
- Once the first debt is paid off, move to the debt with the second highest rate and so on.
- If you get paid any lump sums like tax refunds, use it to reduce these debts even faster.
Get Organised by Setting a Budget and Controlling Your Spending
Create a budget, review it regularly, and stick to it.
Your budget will give you an honest look at where your hard-earned money is being spent and whether you are growing your wealth (saving) or heading for disaster.
Have a critical look at your spending and find ways to reduce or eliminate unnecessary spending.
Sometimes it’s difficult to stay on track, so constantly remind yourself of your goals to stay motivated.
On that note…
Where would you like to be in five years? Maybe you’d like to save for school fees, a holiday or just have some debt paid off by the end of the year.
Setting goals is super important because it helps you create clarity and get started on making them a reality. Keep your goals achievable and review them often.
Break longer term goals into smaller, manageable chunks and don’t forget to include a few fun things too! Your goals should act as a motivator to empower you to say no when the urge to spend on impulse items comes along.
Create Automatic Savings
Spending less than you earn is the basis for financial security.
From your budget, work out how much you can save from each paycheck and have these funds automatically transferred to your savings account.
Work towards saving 20% of your income and aim to put away three to six months’ worth of income in a high interest saver or mortgage offset account as an emergency fund.
The earlier you start saving the more time you have for the magic of compound interest to work for you.
3. Grow Money
Once your debt is under control and you have your emergency fund in place, you may find that you have excess cash available to invest. This is when you should start to learning how to make your money work for you, so that the real magic can begin.
You don’t have to invest your extra money (feel free to spend it at your leisure). But if you want to create more wealth and security for you and your family, it would be extremely wise.
It will also get you on the right path to an earlier, more enjoyable retirement if done right.
There are a number of ways to invest in order to increase your wealth, create more freedom, and live a happier life.
A good idea is to first invest in yourself – read books, attend seminars, or join a mentorship program to learn how to invest effectively.
Another great idea is to work with a professional to get some advice on investments that suit your time frame and risk profile.
4. Protect Money
In order to protect not just your money, but also the future security and wellbeing of your family, you need to have a solid insurance strategy in place.
Below are key points you should be aware of:
“Self-insuring” means you run the risk of having to liquidate some of your assets in order to provide cover for yourself. You should always try and leave your assets intact to protect against longevity risk and provide for future generations of your family.
Generally, you should own enough life insurance (death cover) to repay all your debts and replace 100% of the income you would earn up to your retirement age.
If you have children, do your best to allow an amount to fund your children’s outstanding education costs until they are 21 years old.
Your life insurance should also allow for an amount to cover any ‘unfunded’ personal succession wishes (i.e. funeral costs, weddings, and bequests).
Depending on your circumstances, it is also highly recommended that you consider the tax benefits of owning your life insurance within your superannuation fund.
Finalising Your Estate
Something often overlooked is factoring in an amount for tax and professional fees associated with finalising your estate. This is important if you want to avoid administration delays and problems which may cost your family money.
You should own enough Total and Permanent Disability insurance (TPD) cover to:
- Repay all your debts
- Replace 25% of any income for ‘financial dependents’ (assuming that you have an appropriate income protection policy) and;
- Fund the education costs of your children until they are all 21.
Your TPD sum insured should also allow additional amounts for medical expenses, personal medical care until the age of 65, and any home modifications.
It is important to make sure your income is insured for the maximum allowable amount. Ensure that your cover includes your superannuation contributions and choose the waiting and benefit periods you think are most suitable to your situation.
It’s recommended to take out enough trauma insurance cover (also known as critical illness cover) to ensure the servicing of all your debts for up to 3 years.
Your trauma policy should also provide adequate cover to replace 25% of any income for ‘financial dependents’ (also assuming your income is protected by an appropriate income protection policy).
Be sure to also take out enough to cover $100,000 of medical expenses, plus $15,000 to cover the costs of a personal carer for one year.
When taking out insurance, make sure you consider the definitions within all of your policies. For example, consider whether an “any occupation” or “own occupation” definition within your TPD policy is most suitable. In short, “own occupation” cover will pay out if your can’t do your own job, and “any occupation” cover will pay out if you can’t do anything.
It’s also crucial to assess the most appropriate ownership structure for your insurance policies in terms of asset protection, policy features, and taxation.
For example income protection insurance is tax deductible to the owner. The policy definitions are usually more robust when held outside of superannuation as well – making income protection generally more attractive when held in an individual’s name.
So there you go, four steps that will give you more control over your money and help you create financial freedom…
The question now is; how do you create your own strategy, and STAY on top and in control of your money?
No doubt there’s a lot of ideas floating around in your mind right now – you just took in a lot of information.
Creating a strategy and managing everything by yourself can be very difficult and time consuming.
On the contrary, hiring an adviser can cost an arm and a leg.
Even if you have a good idea of what you need to do, staying consistent and committed to your goals is no easy task.
This is why PictureWealth was created; to help working Australians learn about their money and manage their finances better so they can improve their financial health.
PictureWealth gives you control by providing a complete snapshot of your finances, and insight into how to best organise and optimise your money.
It delivers customised financial guidance for free using artificial intelligence, helping you gain clarity and make better financial decisions.
You’ll no longer need the budgeting apps, spreadsheets, or complicated software.
You can very easily stay on top of your money because PictureWealth allows you to review and manage all aspects of your financial position from one place.
Here is what people are saying:
“…It is great being able to see all of my money on one screen. I didn’t actually know I was worth that much so I feel a lot better…”
– Annie, Sydney NSW
“…Not too long ago my finances were all over the place and I only had a vague idea of what was going on. Now things are much clearer and I know exactly what I have to do next…”
– Matthew, Perth WA
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The information posted is intended to be general in nature and is not personal financial product advice. It does not take into account your objectives, financial situation or needs. Before acting on any information, you should consider the appropriateness of the information provided and the nature of the relevant financial product having regard to your objectives, financial situation and needs. In particular, you should seek independent financial advice and read the relevant product disclosure statement (PDS) or other offer document prior to making a decision.