SIMPLE FINANCIAL RULES TO3 FOLLOW IN CRAZY FINANCIAL TIMES

It’s been 2 ½ years of economic uncertainty as we’ve lurched from a low interest rate environment to a rapidly increasing one. Inflation was tamed, but now that particular tiger has been let loose throughout the world. Same day shipping has now become “good luck getting it next month”. If we think things are going to settle down any time soon, we should think again; because no matter how we look at the financial markets and the wider economy, things are far from what we were accustomed to and there is no going back. As much as uncertainty is unsettling, it’s no excuse to put life on hold. We still have dreams, ambitions and goals. We shouldn’t abandon these simply because inflation is 7% or interest rates are too. But there are some basic financial rules we should be particularly careful to follow right now – just to be on the safe side.

RULE #1: PUT YOURSELF IN A SITUATION WHERE YOU CAN ALWAYS PAY THE BILLS

The pandemic took us by surprise and no one (except maybe a few Nostradamus fans) saw that one coming. What it showed however, was that many people were not prepared to withstand an emergency. Poor savings, and living pay day to pay day, left many vulnerable. Stress over how you’re going to pay the bills is a key contributor to sleepless nights. So for your own mental health, make sure you can always pay the bills no matter what life throws at you:

Pay yourself first. Treat your savings account as you would a power bill. If you get into the habit of saving whatever is left over, you will find that there never is. I’ll say it again. Pay yourself first.

Make sure you have sufficient income and/or mortgage protection insurance cover in place. Far too often people make the mistake of cutting back on their personal insurances when the budget gets a little tight. Just imagine how tight that budget is going to be if either you or your partner can’t work due to ill health or an accident. It’s a big gamble to take that nothing will ever happen to you. Lose that bet, and you could lose everything.

RULE #2: PAY DOWN BAD DEBTS

Not all debt is created equal. Borrowing money to grow your wealth (e.g. buying a business or to further your education) is actually a good kind of debt to have – so long as it’s manageable. Borrowing money to buy ‘assets’ that depreciate in value, cost you to keep and maintain, or for experiences that have no ongoing value (think holidays here) is not so smart. Not only do such items make you poorer over time, you need to use high interest rate options such as credit cards, store finance and personal loans to make those purchases.

So, two things you need to do here:

Stop borrowing money to pay for things that make you poorer.

Pay down your most expensive debts first. These are easy to identify as they have the highest interest rates.

RULE #3: BUDGET

If you have no idea where the money goes, how do you expect to have control over your finances – and your life? If you were to do just one thing to improve your financial wellbeing it should be this - know your financial situation.

Dive into your bank accounts and cash hoards. What are you spending your money on? Keep a running record. $60 a week on coffee? The results could shock you.

Make a list of all the things that you need to pay for in the next week, month, year. Include in that list paying yourself. (Have I mentioned you need to pay yourself first?). Are you earning enough to cover it? Are there areas you can cut back on to help free up some extra cash to pay down some bad debts?

Stick to your budget. It doesn’t matter how pretty your spreadsheet is if you don’t stick to it.

If you haven’t got the money for those fancy shoes DO NOT BORROW money to pay for them! Save up for them instead. There will always be more fancy shoes available in the future.

RULE #4: CREATE A FINANCIAL PLAN

Turning dreams and ambitions into achievable goals requires a plan. When you have a financial plan you will be more likely to: Feel in control of your money and your life. Recover quicker from financial set-backs.

Make smarter financial decisions. Live your best financial life.

Understand what you need to do to reach your dreams.