For years my husband and I struggled with managing our cash and building up our savings.
I used to have fancy spreadsheets forecasting my cash flow (that’s my inner accountant shining through!) and I spent hours calculating what bills were coming in and when, and how much to put aside.
Unfortunately, there were three downsides to this approach:
- It was time-consuming, so I would often forget to do it.
- Because I routinely forgot to update my spreadsheets, I often ended up spending the ‘extra’ cash left over each fortnight, instead of saving it.
- When the bills eventually came in, I didn’t have the cash to pay them (because I had spent it), which meant I had to rely on my credit card.
And the cycle continued, which meant our savings stayed at zero dollars and our credit card debt kept climbing.
So here are 4 simple things I did to get us back on track.
Step 1: Bill smoothing
The first thing I did was put all our bills on a payment plan. In other words, I arranged for our bills to be paid evenly each month by direct debit to align with my pay cycle (regardless of when they would otherwise be due) – this is known as bill smoothing.
These days, you can pay just about everything by direct debit, including utilities, rates and so on. So rather than paying your bills on a quarterly or yearly basis, you arrange to pay them on a fortnightly or monthly basis (depending on how often you get paid). With minimal effort on my part, I was able to avoid bill shock and knew exactly how much money I had left for things like petrol, parking, groceries, clothes and dining out.
Step 2: Prioritise saving
The next thing I did was decide how much we wanted to save each pay, and make it a non-negotiable. This meant that we treated our savings as a bill and set up a monthly direct debit into an online savings account.
Human nature dictates that unless you make a conscious effort to save, you will spend everything you have. For this reason, I recommend deciding how much you want to save each pay cycle, and arranging for your employer to automatically pay this amount into an online savings account that you won’t touch. As the saying goes, out of sight, out of mind. Using this approach meant that I was actually saving, rather than waiting to save what I had left over at the end of the month (which was always zero!).
Step 3. Swap cash and credit for debit
I’ve read plenty of articles that tell you to pay for things with cash because you’ll spend less. But in my case, what sends me over budget is the five-dollar spend here and the ten-dollar spend there. I have no trouble handing over cash for small items, but I do have trouble remembering how I spent it. ‘Yesterday I had fifty dollars in my wallet and now it’s gone – but where?’
In a bid to more closely track my spending, I started to pay for most things by EFTPOS – and I mean with a debit card, not a credit card! This way, it’s really easy to take a look at my account and track exactly how much I am spending on the little incidentals. Since I now know how much I have left in my account until the next pay day, for me this works just as effectively as having a maximum spend in my wallet.
It’s also worth mentioning that since we are increasingly moving towards a cashless society, we need to find a way to manage our spending that no longer involves using cold, hard cash.
Step 4: Isolate your credit card
The final step to sticking to your budget is to remove any ability to overspend – this means leaving the credit card behind.
My credit card came as part of our home loan package, with a whopping $18,000 limit! And, of course, the bank wouldn’t let us reduce the limit or close the credit card account because it came with our home loan. To reduce the temptation to use it, I made sure the credit card wasn’t linked to any of my other accounts, and then I made a point of leaving it at home. This significantly reduced the chances of me saying something like: ‘I’ll pop it on the credit card, just this once.’
I have found that using these four simple tactics has meant that I can easily stick to my goals and know where my money is going.
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