Let's get excited. Well, you can fake it for now and I assure you, you will be later! This is where we start putting the plans and information into action.
It's kind of like what they say in the building industry - "measure twice, cut once". A lot of our work so far has been in preparing, collating and reviewing. Now we will start putting some steps into action to lead to building wealth and financial confidence.
We have got this ...
Just to catch up on where we are up to:-
We have written down all our expenses into weekly, monthly, etc, and the individual adhoc type of expenses that come in occasionally during the year.
We have reviewed a few of our expenses to see if we can reduce or remove the expense.
Income has been reviewed and noted, as well as the debts that have repayments on them.
We have calculated our expenses into weekly/monthly and yearly.
We know our Networth and where we stand with over/under budget.
We left off at the end of STEP 7 knowing if we have a surplus/leftover amount, or if our expenses are more than our income. The latter does happen a lot. Please don't despair. It's better to know than not.
Our current situation, if we were wanting to travel, for example, would definitely put us in the negative. At present, the expenses I have documented for this exercise is fairly bare-bones so we are positive however with minimal investing and putting aside for travelling. There are times like this and I know upfront what I need to do so that we don't get into debt. When things go back to some sort of normal, I can ramp back up to our normal process/budget.
Since I get paid monthly, I like to calculate all our expense periods monthly. My summaries are below. We will now start to put into action what we have reviewed.
* note for transparency - Income #3 is our investment property (IP) rent and the IP expense/loan is within our Monthly expenses
Our summary page (my example is Monthly) tells us a lot. It tells us how much we spend on different types of expenses. So that we can manage what our current expenses are, I would suggest a few different bank accounts to keep these expenses separated and controlled.
Okay, now for your tasks for THIS WEEK
1. Look at what Bank Accounts you have now that you can utilise for the below activity, OR if you need to set up some new Accounts to make this work.
Weekly bank account - this account is attached to a debit card I label DAILY EXP.
- My Example has $4030 going into this account on a monthly basis for us, my husband gets paid weekly so he puts $1000 per week into this account. (Refer to our 'Weekly expenses' in my summary page above).
Monthly bank account - this account is attached to a debit card and includes any Quarterly expenses that you worked out the monthly amount for. I label this one EXPENSES. If you have worked out this account as weekly, I still think it should be separate from the other Weekly expenses we discussed like fuel and groceries.
- My Example has $5460 + $530 = $5990 going into this account. (Refer to our 'Monthly and Quarterly expenses' in my summary page above).
Yearly account - this account is an online savings account and allows your expenses to be levelled out throughout the year, meaning fewer ups and downs with months where you have a lot of outgoings. Again, I am all for minimal thinking/worrying about each month's expenses. Set it up and let it work for you. More on this shortly.
- My Example has $1700 going into this account each month. (Refer to our 'Yearly expenses' in my summary page above).
Note: Until you get a really good handle on this process, I would suggest that the Yearly account is not within your home loan offset account, because it is then mixed in with your loan repayments when we are trying to review that the amount we have setup as your Yearly amount is a good estimate of these expenses. Once you have a great handle on it, then you can relax the separation of accounts but for the start (perhaps 3-9 months) have these separate. With the interest rate on home loans being so low the 'saving' is not huge however the visual of keeping this Yearly account separate will be really helpful for you to understand how your estimates work out during the year and make adjustments if needed.
I also want to point out that whilst you are building up this buffer, you may have large expenses coming up sooner than the account is filled. You may have a little massaging upfront. It's not that the system doesn't work, it needs time to run through for a while to see its magic.
Splurge account - attached to a debit card. I believe this one is a game-changer. It allows you to have guilt-free 'play' money, however, it has boundaries. There is no need to think if you have spent too much or how much you can spend ... when there is no more in the account, that's it until the next transfer. No thinking, no worrying and NO overspending.
- My Example has $200 each week being transferred from the Weekly bank account to our Splurge accounts ($100 each)
Income account - this is an online savings account and where your employer pays your wage to.
2. Setup transfers into the accounts
You now know how much you need to transfer to each account, so have it either manually done as soon as your pay comes in OR better still, set up recurring payments from the account once your pay comes in.
My trick for levelling out my expenses is to actually 'push' money to the bills. Work out a ballpark of what you spend a quarter and divide by 3 to get the monthly amount and then round that number and BPay it as a reoccurring payment each month, instead of in full when it is due. The magic of this method is that when you do get your bill, it will be very little as you already have been paying it down. Our latest electricity and water bills came in at $0.00! See my electricity bill example below.
You can always find the BPay / Billing details on each bill so you can easily do the regular payments to the account anytime, not just when they are due. Below is an example straight from my Electricity bill. All you have to do is go to your bank account, easier on laptop/computer and request to pay the BPAY/biller code and your 'REF'/ account number. Add the amount and instead of 'pay now', change the option to pay later and then you can choose a particular day etc. I use this process so that I am in control of the payment and not the DIRECT DEBIT process date that the company may give you as an option. You can increase/decrease the amount, or place it on hold if you are away one month, or can't afford the expense in a month. Stressless and flexible. Check it out and let me know what you think.
Another example using my water bill.
More Expenses than Income?
Okay, this is where you need to think long and hard about WHAT your expenses are and if there are any that can be reduced. Things like eating at home more often, bringing lunch to work, or temporarily removing some expenses until you get back on top.
The other elephant in the room is if your debts are taking a lot of your paycheck. This means you're living paycheck to paycheck which can feel like an endless cycle you can't break. So we mentioned perhaps removing some of the smaller expenses and eating more at home etc, but for the bigger debts there a few options to consider.
Pay the minimum on each debt and you can either pick the debt that has the highest interest rate OR the smallest balance and pay that one first.
If there are some really large debts, perhaps you can merge the debt to a personal loan or in your home loan to get a lower interest rate. I will caution you with this, as I have done it and I have seen it many times, by just merging and NOT YET having CONTROL of your money first, you can get right back up to your high debts again in a few years and be no better off. However, by having a system and CONTROLLING your numbers, then getting a merged loan, you can make a huge dent in your overall liabilities.
Same goes for taking up the offers of 0% interest credit cards that give you an interest-free period. AGAIN a word of caution and be sure you know the ins and outs of the new card, I did this once and found I couldn't transfer all the debt so was stuck with 2 cards. If you do go down this road my STRONG ADVICE is to CUT up your old card AND the NEW one. Stay off credit cards until you have a solid handle on your expenses/income. Trying to juggle the potential points you may earn from the card AND getting really good control of your numbers and building confidence, might be too much with minimal gain. Remember that building wealth and getting to understand your numbers should bring you PEACE, not more hassles. Perhaps when your super savvy with your numbers and things are swimming along, you can get into the Point Hacks that are everywhere.
Any questions or comments to expand on this, please comment below or email me!
AFTER you've read through all the above tasks, you may find it is useful to take the time to understand and KNOW YOUR 'WHY'.
Why do you want to take control of your money (be financially savvy, save for retirement, save for kids education, buy property, retire early)?
WHAT will happen WHEN you DO control your money (sense of peace, control, choices)
What is your goal when you do have money to invest (specific Networth number, investing in ETF, shares, property)?
The answers to these questions will help you when you do feel overwhelmed or tempted to go off plan. If you need an accountability buddy, the FIRE community and I am here to help and keep you on track. All you have to do is reach out via email or DMs or follow along.
NEXT WEEK after you have your accounts in order, we will look at how to get an emergency fund sorted, paying yourself FIRST and the different strategies for different age groups that you can consider and research.
I hope you enjoy this week and getting the magic starting to happen.