Lose that financial flab
Hannah McQueen urges us to get off the couch, financially speaking.
At this time of year, gyms experience a boom in membership numbers and nutritionists’ books are suddenly full, as New Year resolutions demand the extra holiday kilos be shifted.
If you’re anything like me, the relaxation of your normal structures also applied to your holiday spending as you told yourself, ‘‘I deserve this’’ after working hard all year.
Given even the best of us have fragile willpower at times, and a measly 8 per cent of New Year resolutions are kept, reining in your budget, your belt, or both, is no easy task.
In my experience, you need to answer a couple of key questions in order to be successful in getting financially fit:
1. How bad are things now?
2. What can I do to improve things?
3. And, why am I doing this? When you put on your jeans you get a reality check when you find they no longer fit, but most people are much less self-aware about the reality in their finances.
That’s why, much like the shock factor of stepping on the scales at the gym, you need to first assess your financial BMI.
If you were able to save 20 per cent of your income last year, I’d describe you as the ‘‘crossfitter’’ of finances.
You still need a strategy to capitalise on your strong cashflow, but you’re doing well.
If you’re saving between 10 per cent and 20 per cent, you are plodding along, but with room for improvement.
For example, if you earn more than $90,000 and you have only saved 10 per cent of this, then you definitely have a bit of a muffin top and you need to up your game in 2018.
The clear majority of people, though, are struggling to save more than a smidge of what they earn.
They often need to access that for a rainy day, so have little to show for a year of hard graft.
Changing that obviously requires a plan, but that plan needs to take into account your psychology or money personality to work.
You need allow room for things that you enjoy and make your life better, or it will be like going on a crash diet – you simply can’t stick to it.
It might be having a daily coffee, a professional blow wave or an annual holiday - you need to work out what those important things are that bring you joy.
Crucially though, you also need to work out what you’re spending money on that doesn’t improve your life. That’s known as the ‘‘Fritter Factor’’.
Studies show people tend to fritter about 15 per cent of their money without even knowing where that money goes, and without that spending making them any happier.
If you could eliminate the ‘‘Fritter Factor,’’ it would go a long way towards cutting the flab out of your budget.
Even with the best plan, you’re going to have to create some financial resilience in order to overcome obstacles and temptations.
Like Mike Tyson says, ‘‘Anyone can have a plan until they get punched in the face’’ – and it’s true.
Sticking with your plan once the initial dopamine hit caused by taking control wears off will require a serious shift in mind-set, habits and accountability.
The best way to begin to build this is to know your ‘‘why’’. The more compelling, the better.
The more shallow, the less deep-rooted the commitment.
Some of the ‘‘whys’’ of my clients include ‘‘I won’t get to
''Sticking with your plan once the initial dopamine hit caused by taking control wears off will require a serious shift in mind-set.''
retire if I don’t act now,’’ or ‘‘I’ll end up divorced if we don’t get this under control,’’ or even more excitingly, ‘‘I want to leave a legacy’’.
All of us can be better than last year, and most of us really need to be.
But to make it happen you need to know what you’re doing wrong, how to fix it, and most importantly – why you should bother getting financially fit in the first place.
Hannah McQueen is a financial adviser and commentator.