For many, Simply Red’s song “Money’s too tight to mention” makes us feel incredibly seen. We are living pay cheque to pay cheque, with no savings in reserve should something go wrong, feeling the daily stress of making do.
And like many long standing habits, our approach to money can be difficult to shift. Most of us will tend to blame circumstances rather than ourselves, and while sometimes it is circumstances, we should all be as mindful of our financial habits as we are our diet and exercise habits.
While income plays a part in our finances, it is possible for somebody on a high income to be living pay cheque to pay cheque in exactly the same way as somebody living on a lower income.
Where to start?
Create a budget – but not just any budget – the scary kind where you work out exactly what you need to spend, not what you like to spend to maintain the life you have now. This means you include things like mortgage repayments/rent, bills (electricity, phone, gas, internet), groceries, insurance premiums, debt repayments, childcare or school fees, petrol, registration, public transport and saving towards an emergency fund BUT you don’t include things like streaming services, haircuts, hobbies, gym memberships, non-essential clothing, holidays, eating out or takeaways.
Review the budget. This is where you see where you can cut costs on your basic budget. Can you get a lower mortgage rate, better deals for your phone or electricity? We often set these things up and fail to renegotiate them regularly, but increasing competition means there are often better deals out there.
Compare your basic budget against your spending to see what ‘fat’ can be cut out. The trick to getting ahead is to make sure you build up that emergency fund which is why it’s included in the basic budget. If you can live on the basic budget for a little while, build up that emergency fund, you can then start adding back the ‘fat’. Remember that science tells us it takes 66 days to form a new habit, so you need to put in the hard yards to see a change.
Set some goals
Despite the inspirational memes you see about, your goals don’t need to be bold or audacious. They just need to work for you. You might want to save for an annual holiday, or a new car. You might want to have enough money to take a longer maternity leave or buy an investment property. Whatever it is, set the goal. Or goals. You can have more than one. You just need to know what it looks like, and most importantly, what it is going to cost.
Not literally. Unless you’re a bucket maker, in which case go crazy! This is where you set up different accounts to hold different ‘buckets’ of money – you might have one for your emergency fund, one for bills, one for savings, one for each of your goals. When each pay cheque comes into your account, make sure you siphon money off into each bucket according to your budget. When you first start, the amount might be quite small. But they will build up quickly, and the next time you have to pay a bill for instance, the money comes out of your ‘bill money’ and not out of your pay cheque.
There are no quick fixes to changing your financial habits. It takes time and commitment but the long term benefits are worth it. And it’s not just your finances that will change. People who improve their money management habits also benefit from better mental health, more positive relationships and lower stress levels. And that’s something to sing about!
Disclaimer: The ideas, discussions, options and details expressed in SCCU Blogs are for general informational purposes only and are not intended to provide specific personal advice or recommendations for any individual or on any specific security or investment product. We intended only to provide education about the financial and banking industry to make the complex simple, and help everyday customers realise their dreams.