However it makes much more sense to start without having to wait until a shocking life event. To start, you just need to take the first step.
So the very first step is for you to decide you want to change your financial life. This involves acknowledging that you will take full responsibility for your financial future. This also means throwing aside your previous life experiences with regards to money. So it no longer matters that you don’t have To get ahead financially your head needs to be in the right space. If it’s not then you may need to make a seismic shift to change your attitude to one of believing that you can have the financially sustainable life you want. Only you can do this.
The good thing is that it’s never too late to start.
Sometimes you need some catalyst – usually something terrible that happens that shakes you into taking action. That may be a divorce or health scare. You may have read or heard about Sir Michael Hill and the house fire that catapulted him into taking some action on his financial future in his 40’s! From there he went on to build a global empire selling jewellery.
Don’t be put off by thinking you haven’t had enough education or that your parents were poor. You can create the financial life you want.
If you have a partner, you will need to include them in your decision. Otherwise your best efforts at moving forward may be in vain.
Consider your Money Language. Changing this is so quick and easy to do and will give you some quick wins.
Once you’ve decided that you want to take charge and have taken that first step then the rest can become easier.
Now write down your financial goal(s). Keep this achievable (but at a stretch) and measurable, and make sure you put a timeframe on it. This will give you something to work towards. This may be to buy a house, go on a working holiday, or retire early.
Now write down what you are going to do today to start on that journey towards your goal. This first step might be that you will work out a savings plan or limits to spending, that you’ll start on a course to improve your qualifications to increase your income, or to start investing small amounts through an online platform such as Sharesies or Hatch.
If you are a parent or grandparent you may decide to set up a children’s account to provide for your child/ grandchild’s tertiary education.
A good first place to start is to work out where your money goes. To do this set up a spreadsheet with the following columns:
- Food ( for example, groceries)
- Eating out, including work lunches
- Other entertainment (for example, movies)
- Rent or mortgage
- Health ( for example, doctor’s visits, dentists, medication, gym)
- Utilities (for example, rates, phone, power, gas)
- Appearance (for example, clothes and hair)
- Transport ( for example, bus, train, petrol, car maintenance)
- Gambling (including Lotto tickets) and fines
- Incidentals (for example, magazines, gifts, etc).
Then in the top row for each category estimate the amount you spend in each area in a typical month. Some will be easy to estimate such as your rent. Don’t look anything up such as prior phone and power bills – this process is about understanding how much you spend on these items. For annual amounts such as insurance, estimate the total and divide it by 12 to get the monthly cost.
Then download your last month’s banking transactions from internet banking via a .csv file and copy your actual items of spending across these columns. Don’t pick December or January as they’re not typical months. Total each column and compare it with your estimate in the top row of each column. This will help identify areas where you are spending more than you think you are.
These are the first areas that you can start cutting costs. Nothing is off limits. For example you might decide to move someone cheaper to save rent, or to go housesitting or move back with parents, to change your phone plan or have your hair cut 8-weekly rather than 6- weekly. In many cases reducing costs will be relatively painless and after a couple of months you will have changed your spending habits.
Chloe & Daniel
Chloe and Daniel were tired of paying rent but couldn’t see how they could ever get the deposit together to buy their own home. They had tried sticking to a strict budget but for them it was worse than being on a diet or trying to go to the gym. They would start off well but just couldn’t seem to stick to it. They also watched house prices rising on an almost daily basis. But one day, after friends had just bought their own place, they decided that they were going to pull out all stops to achieve their goal.
They went through the exercise above of working out what their spending was going on, set about ruthlessly reviewing and reducing where possible (they found they could save a bundle on insurance and power by changing providers) and then agreed the amounts they were going to keep for discretionary spending.
They set up two new bank accounts (one for bills such as rent, power, phone, petrol, insurance and food), and one for savings ($100 each per week), leaving their main account for other spending.
They then put in place automatic payments to allocate funds from their main account to the other accounts each payday. They increased their KiwiSaver contributions to 10%. They agreed that as soon as their student loans were paid off they’d put 80% of the additional income into their savings account.
Chloe and Daniel have estimated that they should have a good deposit within 2 years given that they already have some money in KiwiSaver and that they have agreed that any pay increase or other unexpected income should be allocated to the savings account. They have decided that 2 years of only eating out occasionally and only cheap holidays will be worth the sacrifice.
Several months down the track they can see that they will make their goal and have started looking at houses they might be able to afford.
The information in this blog does not purport to be financial advice and no reliance should be placed on it. It is of a general nature only based on my experience as a Chartered Accountant in practice and specific advice should be sought for your particular situation.