Ok, I have a confession. I went a little crazy on the spending in December. Perhaps it was the new credit card I received early in the month. Or maybe it was the new job conveniently located opposite a mall. I don’t know. What I do know, however, is that a “finance guy” such as myself should know better. That’s why I have called this article “8 Important Money Reminders“. Don’t expect to find some new revolutionary money tip here. I’m going back to basics, if not for you, then definitely for me.
1. Track Your Spending
For the first half of last year Kathryn and I had the good habit of writing down everything we spent. It seems, however, that we left this habit in Australia as we completely stopped it after the move. It’s such a simple, yet highly effective habit because it makes you conscious of every dollar you spend.
2. Include Family Members
If you have a partner or kids (or all of the above!), there is little point watching your spending while they run amok. Make money management a team effort. The best way I know how to do this is to do the following together…
3. Set Goals
What are your financial goals? The start of a new year is the perfect time to take stock of your situation and work out what you want to achieve financially. We want to put enough money away for a Maui holiday in the first half of this year, but after a some liberal spending in December it is clear we need to be more disciplined.
4. Know the Difference Between Needs and Wants
Saying “we need to be more disciplined” is one thing, but what does this really mean? Well take, for example, my comment just now that “we want to go to on a Maui holiday”. Now I would be willing to argue that everyone needs a holiday each year for the sake of their own sanity. But there are certainly less expensive ways to holiday than jumping on a plane and flying to Maui.
There is nothing wrong with having wants, just don’t confuse them for needs. Needs are those things you must pay in order to live and avoid bankruptcy: mortgage/ rent payments, taxes, groceries, etc. Wants are the sorts of things you don’t explicitly need, such as expensive vacations and dining out.
5. Be Prepared To Make Sacrifices
One aspect of financial discipline is a willingness to make some sacrifices in terms of what you buy and consume. In December I wasn’t willing to make sacrifices. I fell into the “if I want it, I’ll buy it trap”. And I know I’m not the only one. My friends south of the border in the United States have a mind boggling $800 billion in credit card debt. For some reason to Rolling Stones song “You Can’t Always Get What You Want” comes to mind here. Then again, if all this talk of slashing expenses doesn’t interest you there is always the option to….
6. Make More Money
If you focus solely on cutting expenses, then you are neglecting half of your Income Statement. In addition to everything I have said so far, Kathryn and I are also busy working on ways to improve our financial situation by making more money.
The New Year is a great time to start thinking about ways to increase your income. Can you apply for a job with a higher salary? Do you have any ideas for developing other streams of income? Now is the time to take action!
7. Use Debt Intelligently
A simple rule to live by is to not pay interest on anything that loses value. Although I was a bit reckless with my new credit card in December, I haven’t paid interest on credit card debt in years because I know how debt works (I work in banking) and I have, for the most part, pretty good spending habits. When you think about it, to use debt intelligently you need to have some financial smarts. An excellent place to start is by reading a couple of great blogs dedicated to all things money, Get Rich Slowly and The Simple Dollar.
8. Avoid Store Cards
I succumbed to the oldest trick in the book – I signed up for my first store card so that I would receive a discount on my purchase. Now I can’t wait till they send me the thing so I can cut it in two and send it back (with a cheque for the balance of course). I know you can get little discounts here and there by having store cards, but at the end of the day these cards don’t save you money if they tempt you to spend more on stuff you don’t really need.
So now that I’ve come clean about my month of reckless spending, do you have any bad money habits you want to confess?
Photo by 401(K) 2012