When it comes to managing their finances, Australians aren’t exactly the best. In fact, according to OECD Data, household debt to income in Australia rose from 104% to 212% between 1995 and 2015.
To break the debt cycle, you need to have a better understanding of what your income and expenses are to start managing your money more responsibly. Once you have a better idea of your financial position and obligations, it makes it easier to manage essential payments like rent or mortgage, bills, groceries and car finance payments, while putting aside some savings for a rainy day.
With a long list of things to pay for, where do you even start? This is where the ability to budget and fix your spending habits comes into play. Being able to develop this skill will allow you to pay for the essentials and have enough left for savings.
If others can do it, you can too!
Managing finances isn’t rocket science. All it takes is self-control to ensure that you are spending money wisely. Luckily, there are a lot of resources available nowadays to make it easier, ranging from smartphone apps to the manual method of envelope budgeting. Here are some other ways to help you achieve personal financial success.
1. Stick to a budget
The very first thing you should do is come up with a budget. It includes planning where your pay needs to go before it arrives. It will guide you to make payments on time and will serve as a record of where you are spending your money.
Using different tools can assist you if you’re not sure where to start. You can choose the traditional route and use pen and paper, go digital with a spreadsheet or even keep track of everything through smartphone apps.
Being able to stick to a set budget every week and living a more frugal lifestyle will allow you to save more money in the long run.
2. Use your credit card wisely
Back in 2015, credit card limits and balances reached the highest it had ever been in Australia. So, it’s not a surprise that approximately nine million Australians are in debt.
Credit cards made shopping easier than ever. However, it’s a challenge for some to control themselves and many don’t really seem to think about the fact that they are spending money with every swipe. Others who have failed to repay more than the minimum repayments consistently have seen their debt rise over time with interest and fees, and it’s a situation you wouldn’t want to be in.
Use your credit cards wisely. Only charge what you are confident you can pay back promptly and ensure you don’t miss any due dates. Prioritise debts to prevent yourself from being buried with penalties.
3. Start an emergency fund
You can’t expect everything to go as planned. Life likes to play tricks, and if you’re not prepared, you might end up scratching your head clueless on what to do next. Be smart and be one step ahead by putting aside savings for an emergency fund. You could do this by opening a separate bank account and setting up an automatic transfer, or you could go a bit of a different route and start the $5 challenge; many people that have done this have commented that they were surprised at how quickly it can add up.
If you get a solid emergency fund established, there’s always money for you to pay for unplanned expenses like emergency car repairs or when you need to renovate or replace something around the house.
Not to mention, having money in the back burner gives you peace of mind, knowing that you won’t easily be caught off guard.
4. Get a side hustle
Being content with a single source of income can result in trouble down the line. Unexpected layoffs can leave you high and dry and scrambling to find another job. Although an emergency fund can help you through your temporary unemployment, it can put your mind at ease if you have other sources of income.
A side hustle can be almost anything. Whether you sell your talent or your skills, there are a lot of creative ways to generate another source of income. If you’re artistic, you can create arts and crafts and sell them online or at local markets. You could also offer services like lawn mowing or car repairs to friends and family for a fee. Others have achieved success by doing freelance jobs through online platforms like Upwork. Find jobs you can do online in your free time and earn some extra money on the side.
Being able to work another job in your spare time can help increase your funds and allow you to pay off debt or afford other things that you couldn’t have bought otherwise.
5. Know when to have fun
It’s recommended to include leisure in your budget to avoid burnout. However, it would be best if you’re wise in allocating money for travel and entertainment.
When you’re paying off debts and making other important payments, it’s crucial for you to stay focused on your goal and nothing else. The fun can wait, but your debts cannot. Prioritise paying them on time.
Once you have reached your goal you can treat yourself. It doesn’t have to be grand and can just be something simple like shopping or enjoying a meal at your favourite restaurant. Like the rest of your expenses, you should also set a budget and try not to exceed it. Treating yourself frequently can also endanger your savings so do it in moderation.
Sound financial management doesn’t happen overnight. For some people, it takes a while to get the hang of doing it, but surely it will pay off and will improve your way of living.