The answer to the question, ‘where do I start?’ with money
You know the situation. Your friend is studying to be or has qualified as a medical professional, be it a nurse or doctor. You know you shouldn’t but I can tell you now, that some time into your friendship, fuelled perhaps by Dutch courage, you will seek them out, explain that you have a small lump or illness and then, whip it out wave it in their face for a diagnosis.
My nurses or doctors out there, I can empathise.
I’ve been working in financial literacy for nearly a decade. And as much as I love my friends and my co-workers at my full-time gig, there will come a point where they furtively seek me out and ask the question I can tell is coming.
“Where should I start with my money?”
I get it. Personal finance can feel like you’re starting with a blank page and nothing in front of you but reading through banking products and statements can feel overwhelming.
While part of how I respond to this depends on someone’s specific financial situation, I normally bring back any guidance to the manta: earn, owe, build.
What you earn, what you owe and what you will build.
Let’s start with what you earn.
Do you spend all day sitting at your desk, waiting for pay day and yet have no idea where your money has gone weeks later?
If you can’t tell me where your last pay packet went, my first step would be to start keeping tabs on where your money is going.
If you don’t know and can’t tell me specifically where your money is, you need to start keeping tabs on where your money is going. Once you’ve done this for two weeks, you can then start to reign it in by setting a budget that works for you.
Yes, I said that dreaded word: Budget. It sounds about as appealing as a garden salad without dressing but let me reframe it for you – instead of thinking about deprivation now, think of it as investing in your future, sacrificing what you could buy now so that you can spend that money on something more meaningful in the future.
Whether or not you succeed at a budget is based on how you stick to it. Which is why it’s really important to keep tabs on your spending, even after you’ve put the budget in place, to see if you can thrive under the budget you’ve set or if you need to adjust it a bit so it’s sustainable for your lifestyle. You can document your spending in a physical diary, an excel spreadsheet or save time and use a budgeting app to do the hard work for you, so you can focus on changing your habits for the better. It’s really important to select an app that suits your needs and your personality – jump onto find your best budget app so that you can start putting your money on autopilot. You’ll love the great feeling that comes with monitoring how your spending habits change over time in a way that puts more money towards your future self.
Now you’ve maximised what you earn, I want you to now look at what you owe.
I once met someone who took out a credit card so they could buy a designer coat at 19. No judgement, I’m sure was a great coat and to them, in that moment, it was money well spent. However, it wasn’t their money to spend and that means they now the bank an ever-growing sum in interest payments. If you’re currently packing a credit card balance, I want you to make a commitment to paying it off each month. The owner of the designer coat was paying off their debt but in only paying off the minimum payment on the credit card each month, this would have taken years to fully pay off. What was a onetime splurge would have continued to affect and take away from the opportunity to spend money on her future needs. Instead of being chained to a past purchase, look at how much you can afford to pay above the minimum balance which will pay the debt off sooner. And this for all your debts including credit cards, car loans and student debt. Get the debt off your back and celebrate the freedom that comes with being able to more fully utilise your money each month.
The final step is to look at what you’re building
There’s one fund that should have been growing since you first started work: your retirement fund.
In Australia, we refer to this as superannuation or super. Many of us just tick the box and let our employer pick the fund or organisation that will manage our super and try and grow this on our behalf. But not all funds are made equal and it’s important to look at factors including the previous years of returns and the fees that each fund chooses. Even within a fund, there are several account options which often have huge differences in the fees you pay and the growth of the account based on how much risk you can handle. Generally, the younger you are, the more risks you can take and the more likely it is you can tolerate a high growth account.
It’s your money, so shop around, make an assessment about your risk profile and don’t forget to check out the fees for each account you’re considering.
At the end of the day, in choosing to start taking an interest in your money, you’re choosing to take control of your future.
And that is a question worth asking. Just please check that I’ve had my morning coffee first!