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Shivani Gopal

Shivani Gopal

April 06, 2019
| Money

How to create a personal finance plan in 45 minutes

Spending money is fun and it can make us feel powerful, sexy, in control and in charge. Alternatively, saving money can seem prudish, rigid and antisocial. Most people are so terrified of coming across as stingy that they continue to spend money that they don’t have, just to keep up appearances. But, we shouldn't be too hard on ourselves, because managing our money is a skill that we continually learn as we progress in life. We still need to start seriously thinking about money – so, here's the a way to start your journey to financial freedom in just 45 minutes. 

"The best part about this system is that your money gains a purpose and a goal; to increase your savings – and with that grows confidence and options"

We have many subconscious biases around money. Most of the time, our financial issues stem from our mindset and how we‘ve been brought up to think about about money and what it means for us. 

The good news is that we can get ourselves back on track by following a simple process that will help us take the reins back. 

Budgets

Want to know the best thing about budgets? It’s not that they restrict your spending – budgets give your money purpose. When you create and enforce a budget, there’s an undertone that you’re managing something really important, something that you CAN get under control. 

The really simple and effective budget plan

Here’s how you can create a simple budget by understanding your cash flow.

  • Income: how much you make after tax

  • Expenditure: everything that you regularly spend money on (include entertainment and outings)

  • Emergency: a buffer of money that safeguards your savings if anything unexpected happens

  • Savings: what you keep after all the expenses are taken out

After you make your list of expenditures, you may be thinking, “wow, I spend a lot of money on useless things.” When we’re not conscious of our cash flow, it’s easy to overspend and under-save. A lot of the time, we’re scared to create a budget because we don’t want to feel guilty when we find out that we’ve been ‘mis-managing’ our money. Don’t fall into this way of thinking – it’s an unproductive mentality that will end up costing you a lot of money and time. We just have to make a decision to forgive ourselves and move forward. 

Ruthlessly cut the fat

It’s time to take a long look at your expenditures. Print out your monthly bank statements and grab a pen – you're going to rate each expenditure from '0' to '3', this is a ranking system to determine how important or essential your expenses are – '0' being non essential, and '3' being absolutely essential. Once you’ve done that, you now have a good idea of what to cut and what to keep.

0 = cut out immediately

1 = I like this but I don’t need this

2 = I need this but I can probably find a cheaper alternative

3 = essential expenses

After you’ve rated all your expenditures, it’s time to audit your results.

Audit your spending with a simple and effective system

Everything that has a '0' needs to be cut immediately. Don’t be surprised when you find a lot of '0's staring back at you. Cut out most of the items with 1 next to them, but keep a couple of you’re most favourite. You still want to spoil yourself from time to time. All items with '2' need some extra research, because you will need to bargain hunt and try to haggle on prices with competing vendors. See what’s out there and don’t be afraid to pick up the phone to speak directly with a sales rep. Items with number '3' are fixed. This means that these expenses are running your livelihood and shouldn’t be messed with too much. This can include: rent, car loans, mortgage, fuel, groceries and more.

Making the system work seamlessly

This is the part where you tell your money where to go and just sit back and watch as your expenses get taken care of and your saving increase.

Thanks to online banking and the widespread use of debit and credit cards, you can automate all our recurring bills, your savings and your emergency fund. This is a huge benefit, because you don’t want to constantly be making decisions about how much money you’re are going to save from this month to the next. You want to commit to your numbers and just tell your money where to go.

Method 1

Automate all your recurring expenses out of your regular bank account. You’ll have greater control because you know exactly how much money is coming out of your account. Automate your regular savings and emergency money into another bank account, preferably to another banking institute altogether, because this makes it harder for you to access the in the spur of the moment and safeguards your money from those impulse purchases.

Method 2

If you have a credit card, you can automate all your recurring expenses to be charged out of your card. What this does is build up reward points for you and increase your credit score while costing you almost no extra money. Card fees can range from $50 to $250 per year, but the benefits you’ll generate will offset that. Be sure to set up an auto pay feature on the card to refill what you’ve spent before the free interest period expires so you can avoid some nasty fees. Another thing to think about is your credit card itself. Are the rewards it’s offering you something that you want? Find a card that offers benefits that you actually care about. 

Now, go forth and optimise your money

This simple budgeting system will take you 45 minutes to set up. You should review it carefully over the next month to make sure that all the automatic transfers and billings are working as they should. You should also keep a close eye on any expenses that you’ve missed. The best part about this system is that your money gains a purpose and a goal; to increase your savings – and with that grows confidence and options. One last thing, set a calendar reminder for a budget review with yourself at least twice per year. This ensures that your budget is updated and working well for you. It also gives you a chance to optimise and update it with anything new that you’ve learned along your journey to financial freedom.

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