Money management is about making your money work for you by giving each dollar a job. Establishing a solid plan for your income gives you the clarity and confidence to stay on track through all life changes.
Set yourself on the path to financial independence by adopting tried-and-tested strategies and developing these essential money management skills.
SKILLS TO MASTER
1. Basic budgeting
To know exactly where your money goes, start with a regularly-updated budget. This living document will keep you in control of what’s coming in and going out.
If you aren’t sure how to budget, the 50/30/20 budget system is a good place to start and is easy to stick to — 50% bills and expenses, 30% wants, and 20% savings and investing. You can go into more detail in the spreadsheet and crosscheck with a free budgeting app. And, for ease (and to avoid temptation), separate your savings from your everyday account.
Create a ‘Friday finance hour’ weekly check-in with yourself to keep on top of it. Your budget will change according to your lifestyle and commitments, so use the 50/30/20 as a starting point and tweak the percentages to suit your needs. A budget should feel liberating, not limiting.
2. Goal-based saving
Learning how to save money is key, but knowing what to do with those savings is an important next step. Studies show an increase in savings after a goal-setting session, so why not use this to your advantage?
For example, let’s say you’re putting aside 20% each month for savings. Think about your goals and make a plan to use that money accordingly.
If you have multiple goals, you can achieve them more easily by allocating your savings to even smaller funds. Out of the 20% you budget for savings, you could dedicate 10% to building an emergency fund (three to six months of living expenses) and 10% to a trip to Europe or a house deposit.
3. Automate your finances
It’s good practice to set up auto payments so you never miss a bill.
To make sure auto payments always go through, calculate your recurring expenses and never let your bank account drop below that amount. That way, you’ll never need to worry about being overdrawn or late payment charges.
Looking to increase your cash flow? Consider these 25 ways to make money online, offline and at home.
4. Deal with debt
Let go of any shame and replace it with momentum by creating a money-management plan, sticking to it, and becoming debt-free. As a best practice, you should first tackle your most expensive debt — the one charging the highest interest rate.
The 50/30/20 budget method can apply to debt repayments, too, just like savings.
For example, you can adjust your budget’s percentages to 50% expenses, 25% wants, 10% savings, 10% debt repayment, and 5% investments.
If you’re unsure how your debt affects your financial standing, it’s a good idea to check your credit score and request a free copy of your credit report once every three months.
5. Practice informed investing
If you’re a company employee, you can fill in a form to opt for employer contributions (super guarantees) of at least 10.5% of your gross to go into your chosen superannuation account every year. By 2025, this is expected to increase to 12%.
For self-employed people, superannuation contributions aren’t mandatory. Suppose you’re a freelancer or contractor who isn’t eligible for the super guarantee. In that case, you should set aside a percentage of earnings to save for retirement and take advantage of tax benefits.
Beyond superannuation, explore other wealth-building options. Consider setting up a passive income stream and investing in property, shares, managed funds, exchange-traded funds (ETFs), bonds, gold, cryptocurrency, and micro-investment platforms. As with all things financial, diversification is a smart strategy.
6. Use credit cards strategically
Credit cards, if used respectfully, can be a great tool to earn rewards. You can earn frequent flyer points to pay for your travel. You can pay for flights, upgrade to business class, or use them for accommodation.
The premise is this: Use your credit card for the purchases you’ll be making anyway so you can earn points, and then pay off your balance before interest hits. Banks also offer thousands of bonus points when customers sign up for new credit cards.
If you’re working to build your credit, an effective strategy is using credit cards to demonstrate a positive repayment history. But always err on the side of caution with credit cards. These strategies aren’t for everyone, especially those paying off debt or recently getting out of it.
Getting your first credit card? Whether you’re a beginner or a credit card pro, make sure you know how to handle a credit card responsibly. It’ll save you time, money and frustration.
7. Stick to the plan
It’s easy to get disillusioned about your financial situation, especially if you’re not where you want to be. You may not reach financial independence tomorrow, this year or next. Your money will ebb and flow, so sticking to a plan and establishing good habits that support your financial growth is essential.