If you’re like most people you probably don’t think too much about money other than where you’re going for your next holiday, your next shiny toy, or whether you’ll have enough to balance your accounts at the end of your pay cycle. But there comes a time when you make the choice to get your adult on with money. You probably still WANT to blow most of your paycheck on cool shit, but you realise you should probably get your adult on and start doing something so you have enough money to live the life you want without having to work forever. But making this choice is only half the battle…
A big part of being money smart is knowing what steps you need to take and the best order to do them in. In this article I’ve outlined the key steps to follow to get your financial shit together and be an adult with money.
Step 1 – Sort out your savings
I get it, saving money sucks. Spending it is way more fun. But your savings is the one area that has the biggest impact on how quickly you get ahead (or fall behind). Your spending and saving should also be the biggest driver of the choices you make in other money ares; paying down debt, investing, buying property, or whether you’re going to the Gold Coast or Santorini for your next vacay.
Most people cringe when they think about saving. They think it’s going to mean counting every dollar or making drastic sacrifices. It doesn’t. A good saving strategy is all about priorities. You need to prioritise the things you value most, and reduce your spending on things that don’t bring you real value. This allows you to save more, or increase your spending on the things that bring you real happiness.
It’s common to want it all. The epic annual overseas trip, eating out at the hottest new restaurants, and of course you still want enough money to tell your boss to stick it and launch your own business. But it’s rarely possible to have all your today ‘wants’ AND save enough money to cover your future ‘wants’. You need to choose which priorities are non negotiable, which you might delay, and which are unnecessary and can be canned. Putting all your spending down on paper (or in a spreadsheet) will allow you to choose with open eyes.
Once your priorities are set you need to have a good banking process to make your plan actually happen. A good banking system will make it easier to save and reduce the time you need to spend on money management. WARNING: most people miss this step and their saving and spending plan falls apart as a result. Check out this guide to learn how to set this up.
Step 2 – Ditch your debt
If you have credit cards, personal loans, or other personal (not mortgage) debt, this should be one of the first things you tackle. The high interest rates and ongoing payments on this sort of debt means that unless you direct a big chunk of your income to paying them off, it can take forever to ditch your debt.
To get rid of your debt you need a good strategy, and it’s not as easy as most people make it seem. Cascading debt repayments is a strategy that can help pay off your debt faster.
And the interest is a killer. With standard interest rates between 15%-20%, if you’re paying full freight you’re probably being drained of thousands of dollars each year more than you need to. Today many banks have ‘balance transfer’ offers where they will takeover existing debt with a low (or no) interest rate for 6-12 months. This means every dollar of your repayments is actually reducing the amount you owe which speeds up your debt elimination. Free comparison sites can show you a bunch of balance transfer deals for free.
Step 3 – Invest (the smart way)
Albert Einstein called compound interest the eighth wonder of the word. The longer you invest for, the more you amplify your results. And you can start without any savings in the bank. Starting from $0, investing only $10 per day (or $3,650 annually) into the Australian share market over the last 20 years, today you’d have around $175k. BUT, if you’d started 10 years sooner (total 30 years) you’d have over $460k. Another 10 years earlier (total 40 years) your money would be worth over $1.1m. Not bad for less than the cost of lunch from your favourite cafe, burrito joint, or sushi bar – no judgement here…
This is power of getting started and being consistent. But fear is common when you’re new to investing. If you don’t know much about how investing works or your options, you fear making a dumb choice that will lose you a bunch of money. This leads to analysis paralysis causing you to miss the opportunity to getting started and start getting ahead. But fear can be conquered. Educate yourself and build knowledge around how investing works and how to reduce risk and you’ll be all set to push through inaction and get start getting results.
Step 4 – If you buy property, buy smart
Most people see property as the biggest step to ‘adulting’ with money. But buying property isn’t a necessity, it’s a choice. And a choice that’s not right for everyone. With high property prices around the country it’s definitely not the first step to being money smart. But, if property is important to you and you buy smart, it’s something that can make you a bunch of money.
Property is one of the biggest financial commitments you’ll ever make, which means it deserves your solid attention (and some quality planning) to get right. A good property strategy means being able to afford the property you want without sacrificing the things you value most. Understand the property buying process to get the right outcomes when you buy and avoid common property mistakes.
Step 5 – Be accountable
Aussies seem to have issues talking about money with people they know. You think it’s JUST money, so should be easy to get this area right. You think you should be able to do this all yourself. You don’t want to ask for help. But there are so many different options out there these days when it comes to money management, it’s more confusing than ever before. You need someone in your corner that knows the rules of the game and the common mistakes so they can help you avoid trouble.
We all know that in most areas of life we do better when we have someone to support us and keep us accountable. Whether it’s a personal trainer, mentor, or mates, having someone in your corner often means better outcomes. But we ignore this when it comes to money.
If you’re only accountable to yourself it’s easy to get off track because there are no immediate consequences other than you feeling bad for half a microsecond until you start imagining how that foot spa, new tech toy, or inflatable hypercolour banana lounge you got on ebay is going to change your life for the better. Your buddy could be a friend, partner, or Financial Adviser. The person needs to understand what’s important to you, know the rules of the game and what you should be thinking about, and be able to have tough conversations when they’re needed.
Your next steps
Getting money smart doesn’t need to mean drastic sacrifices. Or intense action. You don’t have to give up your Netflix subscription, next holiday, or weekly mani-pedi. But it won’t happen by itself! Unless you want to deliver your future self a shit life, you need to take action.
It’s so easy to waste time doing things that seem urgent, but aren’t truly important. Money is never really urgent but it’s one of the few things that are important. You should make getting smart with your money a priority. Act now. Be consistent. Make the results you want actually happen. Don’t suffer from inaction or a year from now you’ll be kicking yourself you didn’t start sooner.
The seven paths to money mediocrity (and how to avoid them)
Change is fucking scary. This means we tend to default to what we know. You really want to go to the gym and try a Zumba class but you’re secretly shitting yourself that you’ll mess up the steps and looking dumb, so instead you hit the couch watching reruns of the bachelor. Yes, there’s something warm and reassuring about our comfort zone, but you need to push through the awkward first stages change if you want life to be different (read: better). When it comes to getting ahead with money, I see the same seven roadblocks that stop people from making meaningful change with money. This eBook covers what these mistakes are and how to avoid them. Enter your email below and get it straight to your inbox. No spam, I promise.