For years, people have tried to make financial planning more exciting, but it doesn’t always seem to work that way. What does work, however, is relatively dull. Financial planning is like watching an oak tree grow. It’s short-term boring, but long-term exciting. Second, it’s hard.
It’s about saying no to things we want right now in exchange for something we will definitely need many years later. Here are a few ways to jump-start your savings this year:
The starting point for any financial planning is knowing what you are worth now. Make a list of what you own and, roughly, what you think it is all worth. Now you’ll need to come up with a list of the amounts you owe to other people. The final step is simple – deduct your liabilities from your assets.
This may not be a favourite on your to-do list, but it’s important. Budgeting can reveal where your money goes, whether you earn more than you spend and how much more you could be saving. Look at about three months of your spending. That way, it’s easier to get a clearer picture of what you’re spending your money on. You might be surprised just how much you are wasting on things you simply don’t need. Include savings as part of the budget and treat it like any other monthly outgoing such as a bill.
Once you’ve set aside cash for day-to-day costs, you can then meet bill and loan repayment demands in order of priority. Pay off the highest interest debt first. If you have multiple high-interest loans and/or cards, choose to pay off the one with lowest outstanding first.
Pay yourself first
Most people save what’s left over every month. Flip that strategy this year. Set a goal for your savings this year, divide that amount by 12, and then save that money every month, before spending on anything else. Don’t try to set aside too much at once. You may fail. It is better to put aside a little each month instead.
If anything about this plan qualifies as exciting, it is this. In today’s high-tech world, it’s possible to automate everything from paying your bills to saving for retirement. Have money transferred regularly from your current account into whatever savings or investment vehicle you decide. The key is to automate the behaviour so it quietly works in the background, leaving you to focus on the things that really matter.