“A challenged world is an alert world. Individually, we're all responsible for our own thoughts and actions - all day, every day. Collectively, we can all help create an inclusive world. From challenge comes change, so let's all choose to challenge. ” - International Women’s Day

Evolution would like to inspire you to choose to challenge your finances and aim for financial freedom.

When you start to get your finances in order, not everything will be easy. In fact, some of the exercises will be difficult because they require you to go deep into your debt, spending habits, and general financial health.

Change your mindset

Most people assume that you need to cut costs by sacrificing the things you love, keep a traditional spreadsheet budget, or invest in bitcoin/crypto. Realistically, you just need to be conscious of your spending and make purchases that align with your values.

Start a Budget you Actually stick To

In order to have financial freedom, you need to do more than simply want it, you need to be strict with your money and make purchases that align with your values. Budgets are not one size fits all, they are unique to each person’s experience, situation, lifestyle, and money story.

You don’t need an accountant or special software to set up your own budget. Start by looking at where you are right now and where you want to be.

Step 1: Set your Money Goals

First, work out why you want to do a budget. This can help you to decide where you want your money to go.

Ask yourself: what is my goal? It could be to stay on top of bills, save for emergencies, pay for your children's education, or save for a holiday or a house deposit.

Step 2: See where your Money Goes

Having a clear picture of your regular expenses and spending habits will help you set up your budget.

To do this, track your spending over a week, a fortnight, or a month. See Money Smart’s track your spending on practical ways to do this.

Step 3: Set up your budget

1. Record your income

Record how much money is coming in and when. If you don't have a regular amount of income, work out an average amount.

Make a list of all money coming in, including:

how much
where from
how often (weekly, fortnightly, monthly or yearly)

This money could be from your wages, pension, government benefit or payment, or income from investments.

2. Add up your expenses

Record your regular expenses, including:

what for
how much
when

Regular expenses are your 'needs' — the essential items you need to pay for to live. These include:

Fixed expenses, for example:

Debt expenses, for example:

personal loan repayments
credit card payments
mortgage repayments

Unexpected expenses, for example:

car repairs and services
medical bills
extra school costs
pet costs

To make sure you've recorded all your expenses, look at your bills or bank statements. If you tracked your spending, use your list of transactions.

3. See if you can save

Having some savings can help create a safety net for unexpected expenses. Set a savings goal and work out how much you can save each payday.

Use the Money Smart savings goal calculator to help you work out how long it will take you to reach your savings goal here.

4. Set your spending limit

The money you have left after expenses and savings is your spending money. This money is for 'wants', such as entertainment, eating out, and hobbies.

Make a plan for what you want to do with your spending money. This will help you to keep within your limit. Keep track of your spending so you always know how much you’ve got left.

Set up three bank accounts: high-interest savings account for savings, and two transaction accounts for spending and bills. Schedule transfers of your savings and direct debits for your bills to automate your finances.

Review your budget regularly

It's important to adjust your budget as things change. For example, if you find you can't cover all your expenses, savings, and spending, you may have to reduce your spending limit or change your savings goal.

For ideas to help reduce spending, see Money Smart’s simple ways to save money.

get out of debt

Before you start investing you need to get out of debt, we’re not talking about HEC debt or mortgages, we are talking about bad debts such as personal loans, credit cards and consumer debt. If you’ve still got debts hanging over you, the less money you have to invest with, not to mention you’re essentially flushing money down the toilet in the amount of interest you’re paying.

Some tips to get out of debt:

Find the exact amount you owe. A study found that many don’t actually know how much debt they owe. However, this just leads to you blindly paying the minimum payment instead of actually owning your debt. Only then can you start a good strategy to get rid of it.

Use the Snowball or Avalanche methods. Dave Ramsey famously touts his Snowball Method of getting out of debt. This involves paying the minimums on all of your debt but paying more money to the card or loan with the lowest balance first (i.e., the one that will allow you to pay it off the quickest). There’s also the Avalanche Method, which involves tackling the debt with the highest interest rate first. It doesn’t matter which method you choose. What matters is you choose one and stick to it.

Automate your Personal Finances

Having an automatic system in place for your personal finances is a great way to:

Be conscious with your spending
Pay down your debt passively
Invest without even thinking about it

It’s also the best way to make sure you’re conscious of your spending.

One reason we don’t save or invest money is due to the pain of actually transferring your money into your savings account each month. When you automate those things though, you can do it passively because your system does it for you. That means saving, investing, and spending guilt-free for years to come.

here’s a quick overview of how you can build this system today:

First, categorize your spending. You have to know exactly where your money needs to go each month in order to send it there.

So ask yourself, “How should I spend my money each month?”

Some spending recommendations:

Fixed costs. About 50% to 60% of your income should be going toward things like your rent, phone bill, utilities, and internet.
Investments. About 10% of your income should be going toward investments for the future such as your Roth IRA and 401k.
Savings. About 5% of your income should go toward short- to mid-term savings goals. Think things like your wedding, down payment for your house, and down payment on a new car.
Guilt-free spending. About 25% to 30% of your income should go toward guilt-free spending. These are things like extra guac in your Chipotle burrito or your morning lattes.

Second, you’re going to want to take a look at your recent credit card or bank statement and subtract the amounts in those categories from your take-home pay. You’ll then get an idea of what you have leftover for categories like investing, saving, and guilt-free spending. NOTE: This doesn’t have to be an exact amount. This can be a ballpark figure. As you get more advanced, you can fine-tune this system. The important thing to do now is to get started at all.

Lastly, spend some time calling your bank, credit card companies, utility companies, and payroll manager at your job to make sure that you know exactly when to expect them each month.

Once you’ve automated your spending, congrats! You’ve taken a crucial step. You’re learning how to control your finances.

iNVEST in your future

The unfortunate reality is that many people just don’t understand much about investing. According to the ASX 2017 Investor Study, 40% of Australian adults don’t have any other investments outside of their superannuation funds. Of those that had never invested, many believed they didn’t have enough money to invest or lacked the confidence in their ability to invest. If you start investing while you’re in your twenties, even if it’s only a small amount, you have the gift of time on your side to grow your money. A little bit of money now can add up to a lot later, thanks to the magic of compounding.

It’s important to educate yourself about the economy, interest rates, exchange rates and government policy, and understand how these factors may affect a company’s performance, says the Australian Government’s MoneySmart website. The ASX also has a share investing education section on its website.

If your feeling a little overwhelmed with all the information you find, give us a call and organise a consultation with one of our Financial Advisers today.

International Womens Day #choosetochallange