Financial change happens one pay cheque at a time, but there are many things we can do between pay cheques to ensure we are better at our finances from one payday to the next. Consider this your how-to guide for financial discipline.
Widening the gap between your income and expenses can be done by earning more, spending less or keeping your expenses constant while your income grows. Few of us can control how much we get paid. Unless you figure out a way to supplement your income, it’s far easier to control your spending.
Tracking your expenses alerts you to an increase in your spending immediately. You can be proactive in the ever-raging battle against lifestyle creep. It also highlights some bad financial habits you might not want to admit to yourself. You can deny that you spend too much money on cupcakes all you want, but your expense tracker doesn’t lie.
Keeping track of your spending also ensures you have enough money in your emergency fund.
Your emergency fund should generally have about three months’ worth of expenses available to you immediately. To get an accurate emergency fund goal, you need to know how much you spend every month.
Back in the pre-internet days this important task came down to pen and paper. Thankfully for us, there are apps and internet banking portals that do most of the hard work. All we have to do is be honest about what we see.
Sadly, it’s all too easy to pay for things we don’t need because we’re not paying enough attention.
Hopefully tracking your expenses will alert you to some of these gremlins. However, if you’re still employing the pen and paper method, you might miss them. Go hunting for these costs after every payday and make it your mission to eliminate them.
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Insurance on things you can afford to replace yourself or things you don’t use.
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Interest on your credit card: most credit cards have an interest-free period for card transactions. Find out what that period is and make sure you pay what you owe before your interest is due. In most cases, you pay interest on cash withdrawals, EFT payments and petrol purchases immediately, so avoid these on your credit card.
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Bank fees: In South Africa there are bank accounts that cost less than R100 per year and there are accounts that run into the thousands. The banks like us to believe we pay for value-added services and a “personal touch”. However, some of us prefer keeping our money and doing online banking over access to a personal banker once a year.
Do your research
There are so many financial products and so few people who can afford them. As soon as you take charge of your spending, you have disposable income. You are the juicy steak to the hungry financial system.
Financial product salespeople like to tell us theirs is the only financial product we’ll ever need. It’s important to use the time between pay cheques to really understand the financial product someone is trying to sell you.
Most of us need a combination of insurance products, savings products like bank accounts, investment products, long-term savings products like retirement annuities and debt.
As a rule of thumb, insurance and debt costs us a lot, so it’s a great idea to start there.
Name your strategy
It’s up to you to develop a financial strategy that makes sense, but having a strategy in your head isn’t enough. You need to write it down. Putting pen to paper forces you to be clear about your financial goals and holistic in your approach.
A financial advisor can be a great resource to put together a financial strategy or you can go at it alone - providing you keep coming back to it. Once your monthly debit orders have been deducted, revisit your financial strategy to see if you’re still on track.
These steps will keep you occupied from one pay cheque to the next. Improving your financial discipline can be difficult at first, but it’s one of the most emotionally and financially rewarding things you’ll ever do for yourself. Good luck!