(03) 9020 2905Bruce Brammall, The West Australian, 4 January, 2019
New Year’s Eve is a stupid time to make resolutions. Don’t add to an often underwhelming night with a promise you’ll have forgotten in two days.
Should we really be making life-changing decisions at a time when we wouldn’t legally be allowed behind the wheel of a car?
Let’s try a bit later in January, as you finish holidays and have to start planning for the work or school year ahead.
Let’s loosely call it mid-January. This is an excellent time to concentrate on your finances, as it often coincides with the heart-attack inducing arrival of the Christmas credit-card bill.
So, consider today a bit of pre-planning.
Firstly, understand financial resolutions can be boiled down to two basic concepts – save more money or make more money. (Okay, there’s a third: “Win the lottery”. That won’t form part of today’s sermon.)
If you’re ambitious, it should be both. For many, there’s an element of “chicken or the egg” here, as one can’t happen without the other.
How YOU wish to concentrate your efforts in 2020 will probably have a lot to do with where your finances finished in 2019.
What was the real problem? Was it income or spending? Most generally claim income. But spending is where the problem usually lies and where the quickest kills can be achieved.
Save more money
This might be the boring one to start with, but it’s the one over which you have the most control.
How do you save more? At it’s most simple, you spend less.
While an obvious concept, it requires a significant change of mindset. Start that by understanding the difference between “need” and “want”.
Most people could, easily, cut their spending by at least 10 per cent of what they currently outlay. Often 20 or 30 per cent. It’s about choices, and deciding on priorities. If your priority is to improve your financial position this year, it’s almost inevitably got to start with the spending side of the ledger.
What are you spending your money on? The proper way to figure this out is to go back through your last month or two (made more difficult by Christmas, granted), or to track it for the next couple of months.
In any case, ask yourself before each purchase: “Do I need this? Or do I want it?”
If you’re driven to change your spending habits, then this question needs asking before every spending decision. You need to eat, but you don’t need take out so much. You need to have a social life, but it doesn’t require being in a cocktail bar all the time.
You need a car. But it doesn’t need to be an expensive one. (Cars are, in my opinion, wealth-sucking vacuums. And the less you spend on them, the wealthier you will be.)
Make more money
“Easier said than done!” I hear you cry. But give me a chance, as the advice isn’t necessarily what you’re thinking.
It can be very hard for employees to make more money. Putting in significant extra hours might (or might not), lead to pay rises down the track. Extra part-time jobs might be a better option for some.
And for business owners, conditions in your field might make things difficult, as technology, trends, or competitors constantly advance on you.
Yes, progressing your main source of income, over time, is critical. But your ability to do that relates intimately to your personal situation. And I can’t do much about that today.
I’m really talking about the other sort of “making money”.
Investing.
You can’t save your way to a fortune. Nobody achieves wealth that way. Fortunes are created by long-term investing, mostly in shares and property.
You must have a plan to invest. And your intention must be that it’s going to become a lifetime habit.
It is your investments that will meet your longer-term income and capital needs.
Where does the money come from? Natural savers already have what they need to start. Now, slowly, move that money out of cash (returns on which are going anywhere fast) and start your long-term plan around shares and property.
For those who are determined to start saving, as above, the reason you are saving is for this reason – to start your investment strategy.
And if you don’t know what you’re doing … do yourself a favour and get a professional adviser on board your team.
Bruce Brammall is the author of Mortgages Made Easy and is both a financial advisor and mortgage broker. E: bruce@brucebrammallfinancial.com.au.