It’s payday! You pay all your bills, have a brief period of feeling rich and buying the expensive yoghurt at the supermarket, and then suddenly… your bank balance is low again. How did that happen? Where did your money go?
If you want to take control of your finances, start saving more, and turn your future into a brighter one, it’s not as difficult as it seems. The starting point is to find out where all your money is going and manage it better so that it doesn’t all just seemingly evaporate into thin air.
Create a Budget
Budgeting doesn’t have to inflict terror. You may think that a budget equals boredom – no dinners out, no new toys, no socialising. However, a budget should be about what you need and want in your life. It should let you live your life but help you to understand where your money is going.
Write down your income (solo or combined, whatever your situation is). Then write down your fixed expenses. This includes rent/ mortgage, rates, internet, electricity, phone, water, vehicle running costs, Netflix, school fees, and any hire purchases or loan repayments. Then, the more flexible expenses- how much you spend on groceries, entertainment, shopping, and travel. Now, think about how much you want to save, and write that down too.
Now the scary bit happens. Download the last few months of your credit card/ bank statements. Go through them and see where you’re actually spending your money. Places like your favourite café will be fairly consistent, and it can be worrying to see what your latte-and-a-muffin habit costs you. Group the expenses into categories and you’ll quickly see a pattern forming. Do you spend your money on shopping for clothes? On entertainment and food? On your children? Or your local hardware store?
Now that you can see where you actually spend your money, it’s time to refine your figures and set some limits. If you create a strict budget with no room for fun, you will fail. Much like a diet that says you can only eat cabbage and carrot, you’ll get bored quickly and cheat with chocolate. At this point, it’s a good time to step back and call the professionals. A financial adviser can often quickly assess a situation and help you implement simple ways to save your valuable money.
Set Your Financial Goals
What do you want from your life? What are your future plans? Do you want to retire comfortably? What about owning a mortgage-free home? Do you want to travel, have a family, buy a theme park and ride a rollercoaster every day? Effectively managing your money will go a long way to helping you achieve your goals.
How much money will your goals need? It’s easier to plan once you know how much you require. A financial adviser can quickly help you ascertain what you need, offering years of experience in planning for financial freedom.
So now you have your expenses and goals sorted, it’s time to see what you can do to make your financial future better. Remember, there is no right bag of tricks for you to apply as every person and situation is unique. Butno matter what a financial planner recommends you do, sooner or later you will want to consider investing to achieve your financial goals faster.
Plan to Invest
You may wonder, ‘what is investing’? or wonder why should you invest. Investing is the act of committing money (or capital) to an endeavour with the expectation of receiving an additional income or profit. It’s about creating money by effectively utilising your existing funds.
A financial adviser can help educate and advise on the best option(s) for you as there are lots of “things” you can put your money into – property, commercial ventures, shares, bonds, bank deposits etc.
However, investment planning does have a few rules that any savvy investor would be wise to follow. The first rule of investing is to never to use money that you can’t afford to lose. Many “investors” who had borrowed money to buy shares in the share market frenzy of the 1980s (often using the family home as security for these loans) got caught out when share values plummeted within hours on Black Friday 1987. Not only did these investors lose significant share value, in some cases they lost their family home too when they could no longer repay their loans. Investing is a gamble – gambling on the housing market, the share market, or the economy – so it pays to know what you’re doing and only take risks you can afford to take.
The second rule is to always do your research. If you think you’ve done enough research, do a bit more. This is not an idle Sunday afternoon type of research.You need to spend time looking into your planned method of investment. For instance, if you were buying an investment property, you’d research current interest rates and what the OCR will be doing in the future. You’ll ponder the effects of the recent government changes to legislation and the consequences on the anticipated building of afford housing. You’ll research the suburb you intend to buy in, the house and is the section can be subdivided, and so much more.
It’s the same for investing in shares. You’ll research the current economy and anticipated future trends. You’ll look into the specific business and how it has grown. Have they changed CEO or board members? What are they projecting as their future growth? What have their trends been like over time?
No matter what you wish to invest in, it pays to do your homework first. If this all seems a bit overwhelming, then seek expert advice.
Get Expert Advice From a Qualified Financial Planner
If you’re concerned that you don’t know enough about investing or fear making a mistake, then contacting a suitably qualified financial adviser is crucial. They will have years of business and finance acumen, as well as in-depth industry knowledge, at their disposal.
A good financial adviser will be able to recommend investments for you based on your situation and tolerance of risk; from KiwiSaver and other retirement savings schemes to more complex investment opportunities. And during the process, don’t be afraid to ask questions. Lots and lots of questions!