We often seem to complicate things, don’t we? Take personal finances, for example; too many people over-think their finances, with the result that it all seems too hard. So we just give up on trying to control expenditure and saving.
The simple fact is, taking small, simple spending and saving actions, especially early in your working life, can make a huge difference to financial security during your working years and into retirement. This can be as simple as forgoing dinner out sometimes and cooking at home more; taking your lunch from home sometimes instead of always buying it; and the oldie but goodie – giving up one expensive Starbucks coffee a day.
One of the simplest things you can do is to educate yourself about financial matters. I don’t mean high rolling investments or stocks and shares either – that can all come later on. What you need to know now, is small steps you can take on a daily basis, to ensure your financial security and peace of mind.
Here are some ideas to help you get started.
Make your mantra, ‘Keep it Simple’. The more complicated your finances are, the harder it all seems. This means that you put off getting things organized and putting things off never works, as we all know too well! Simple finances work for you rather than against you, so it’s a win-win.
So, how can you make things simpler?
Have a Budget
Firstly, you must know where your money comes from and where in needs to go. This means you must have a budget and that budget must be accurate, complete and absolutely simple and easy to follow. If your current budget is so complicated you never look at it, sit yourself down and simplify it. All you need is a list of expenses, both fixed (rent, loan repayments) and variable (food, clothes, fuel), and a list of all sources of income. Some simple math gives you monthly totals, so you always have a clear picture of what you earn, what you owe and what is left.
Your budget helps to make spending simple too. Wow! Simple spending, what a great concept! It tells you exactly what you must spend you money on (your fixed expenses and variable ‘needs’ spending), how much is savings and how much you have left over. You are never in any doubt if you can afford that gorgeous jacket you saw on sale. Your budget helps you manage your debts, get them paid off and stops you getting in any deeper. No more nasty phone calls or letters of demand!
Variable expenses can be a bit tricky; it’s best to do a priorities list so you make sure the things you need, like food, bus fares and fuel are always covered. You might need a new outfit but you ‘need’ food and a way to get to work more! When you know you’ve got the essentials covered, it’s much easier to decide if you can buy other things you want.
Assess Your Bank Accounts
The next simple thing is to look at your bank accounts; if you have several, think whether you need them all. Wouldn’t it be much simpler if you only had a few accounts, maybe a working account and one or two savings accounts?
Get a Debit Card
The next step to simplifying your finances is to get a debit card linked to your working account, (the one that does the work of paying your bills and expenses). Debit cards allow you 24/7 access to your own money and help to reduce the use of credit cards. Speaking of credit cards, make your life so much simpler by paying them off, cutting them up and just keeping one card for emergencies.
Reduce Your Credit Cards
Ouch! That one is going to hurt! But contrary to popular belief, credit cards make your life more complicated, not simpler. They have single handedly created the huge amount of personal debt in this country.
Start Simple Saving
Let’s look at simple saving. I know, I know – that doesn’t sound right, does it? This is the area where most people struggle; there never seems to be anything left over to save!
The trick is to pay yourself first, rather than last like we usually try to do. A savings amount must be included in your budget, even if it’s just a little bit to start with. Any savings are better than none; you can always increase the dollars as you get on top of your financial situation. If your budget doesn’t allow for savings, find somewhere to shave a bit off your spending.
Arrange for your savings to be automatically transferred from your working account to your savings account, the same day that your pay goes in. Because you’ll never see this cash, you won’t miss it. Plus you’ll be amazed at how your savings add up! This really is saving made simple!
Use this same idea to save for big things like an overseas holiday or a new car, opening a special savings account for this purpose.
So what do you think? Do you think you can put some of these simple strategies in place to help get control of your finances? Start small by making one or two changes; when these are working, change something else. Keep it simple and learn to control your money rather than have it control you.
What kinds of tricks have you used to manage your finances?
I am all for making it as simple as possible. Automation works for all expenditure except the evryday variable one (food etc.). But it has to be checked – so every now and then I go through a detailed exercise of reocrding and analysing where our monye goes. Often I am surprised at what I find and not in a good way. For food, our cleaner and other variable expenditure we have started to take out cash. Works a dream.
I always find it amazing that no matter how much you budget and track you can always find room for improvement. The key is to review so you can make those improvements.
Ah the simple life. I’m thinking that as net worth rises it becomes increasingly more difficult to keep it simple. More diversification= more accounts and property and bla bla bla stuff, but I guess at that point hiring a bookkeeper is an option.
That can be true. We can get more on our plate to manage that is for sure. I find using a software program like Quicken makes keeping track of numerous accounts really easy. You should try it.
Simplicity is key when you’re first starting out with finance until you get everything under control. After you are confident with that I’d add a little bit at a time to make sure you can keep things under control. There are benefits with complexity but you must be able to handle simplicity first.
Baby steps is always the first step. I like your point about confidence. Feeling like you know what you are doing can make a big difference to your result.
Simplicity is the keyword for your happiness. I’ve been simplifying every aspect of my life including savings. recently, I increased my 401(k) contribution to 25%(both pre and post tax) and automated increase of 2% every year for next 5 years.
That is fantastic. Good for you for increasing. It is only going to make things easier later. I always try to make things as simple as possible. It so much less stressful.
I agree with paying yourself. We have an automatic transfer from our checking to our savings every month. When we paid off the house and cars, I increased that transfer to include those payment amounts. And you’re right, the savings just keeps growing.
That is great. We do something similar. I love not having to worry about it. There are so many other things on the list that not having to do one more thing feels great. Good for you for keeping saving even once you paid things off. This is where some people feel like they can go on a spending spree and ignore savings for a bit.
Well said Jeremy. I am a big fan of that strategy. It just makes things so much more simple. I like to automate as much as I can.
Great point with the raise too. Every time I get a raise I do the same thing.
The basic budget has been crucial for me. I use excel and it makes all the fancy charts so I can see where I’m spending my money (I log that,) just like any pricey program would.
That’s great. I don’t think it matters which program you use to track things. What matters is that you track it. Excel is quite handy.
The onl thing on this list that I don’t have is a debit card. I don’t really go shopping, so that would not work for me.
If that is the only thing you are missing than you are doing pretty great. Keep it up.