Your home may be looking neat and tidy but could your finances do with some decluttering too? Find out how to go about it with our guide to simplifying your budget, bank accounts, super and debts. Ready to discover the life changing magic of simplifying your money management? Taking the lead from minimalism guru Marie Kondo, we bring you a step-by-step guide to applying decluttering principles to your finances.
Less really is more
Of course, we’re not talking about giving all your money away to make life simpler. But simplifying your finances will almost certainly make it easier to stay on top of money matters. When you’re dealing with too many bank accounts, bill payments, super balances and debts, you’re far more likely to lose track of what’s going on with your money. And that means things can fall through the cracks, which leads to missed opportunities as well as long-term problems.
So paring back your finances is the first step to feeling capable and in control. And once you’ve simplified things, it’s that much easier to keep money matters organised, through automation and regular monitoring.
1. Budgeting based on your values
It important to prioritise things we value when spending money in the first place. Understanding what you value most, and then taking a good look at where your money is actually going can be a powerful way to shift your spending habits.
This is something we have found to be true for our clients over the past two decades. You’ll struggle to get anyone to stick to a cash flow, budget or savings plan, if it does not align with your true values. The values conversation has the greatest impact on motivation to make changes.
2. How many bank accounts?
Although it can help to have different bank accounts for savings goals, and another to make sure all your regular expenses are covered, keep multiple accounts to a minimum to save time and effort. Monitoring balances, interest and outgoings for so many accounts just makes things complicated.
Having four separate accounts should be enough for you to manage income and expenses with ease and keep everything simple and smooth with your cash flow and savings. The majority of your money will go into the household account for everyday expenses, with two savings accounts, one for short term goals, like saving for a holiday, and another for your financial future. Funds from this third account might go towards a rainy day fund, your super or some other type of investment. And having a fourth account where you can channel about 10% of your monthly income to spend on yourself, guilt-free will allow you to save for the future without missing out on enjoying yourself, here and now.
3. Simplify your super
Over a lifetime your super balance has the potential to become one of your biggest financial assets. So making sure you’re receiving all the super contributions you’re entitled to and knowing where they are is an important part of financial housekeeping. It’s not unusual to lose track of super if you’ve changed jobs or moved house a few times. Not only will consolidating super give you fewer funds and statements to keep track of, it can also save you a fair amount in fees. Before you decide to close any of your existing accounts, it’s important to check whether you’ll still have the right level of insurance cover as you’ll often have personal insurance policies – such as life or income protection insurance – arranged and paid for through each super fund. It would be best if you engaged with a financial adviser to assist in this complex exercise.
4. Do away with debt
Clearing multiple personal debts once and for all can seem like an impossible task. As you struggle to get back to zero, temptation can creep in to just borrow more and become resigned to debt as a permanent part of your financial situation. One option is to consolidate your personal borrowing into a single repayment to make it easier to chip away at the outstanding balance. We may be able to refinance your home loan so you can bundle debt repayments with your mortgage and benefit from a lower rate of interest as a result.
But if you don’t have a mortgage or you’re looking for a simple way to pay down personal debts faster, The debt pyramid method is probably better known and involves paying as much as you can towards the debt with the highest interest first. The thinking here is that you’re saving yourself more in interest. Then you have the snowball method which prioritises debts in order of size, putting more of your repayment budget towards the smallest balance first. When this debt is settled, you can redirect more of your cash flow to the next smallest so you build up momentum and that’s where the snowball effect comes in. The satisfaction and sense of achievement you’ll get from having one less debt to deal can also give you the motivation you need to keep going on your mission to get completely debt-free.
Talk to us today about how we can assist you with your finance needs on 1300 861 143
Your Choice Mortgage Brokers Pty Ltd ATF Halo Innovation Trust trading as Heart Mortgage Services - Australian Credit Licence 38643
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