Exploring the world of money and investing with OUTinPerth’s new columnist JM.
First let me issue a disclaimer: I am not, nor do I claim to be, a financial genius. My successes and failures within the area of finance are based on: budgeting, advice from friends and family; and – of course – good luck. I have amassed three houses in two different states and an average amount of shares. Through my experiences, I have gained powerful insights into how money can be made and managed simply and with little headache. This, however, does not make me an expert, just someone who impulse shops on a large scale… after all I am 26 and gay! While to some my modest portfolio may sound impressive, it has been gained through hard work and planning. I have two jobs and routinely trick myself into saving to ensure I have enough reserve money to afford my impulsive shopping, which can include anything from clothes to a kayak to a ‘sulking holiday’ (you know the ones where something annoys you so much you have to take off overseas, or interstate?).
Whilst many of my friends have similar spending and lifestyle habits to mine, all too often they live from week to week financially. This seems to be a common mentality, of enjoying now! But, it is amazing how much better off each of us can be with some simple changes.
The first step in managing personal finances is to have a goal. This goal could be to have five thousand in the bank, to purchase a house or just to get beyond living from pay to pay. As an example, I have a friend who recently returned to university after a few years of working and living life to the fullest. He found it really hard to manage on his part-time income. The crunch came when his gym membership was directly deducted from his account and there was not enough money for the deduction. Whilst only needing an additional fifteen dollars to cover the difference, the penalties charged by the bank for the overdraft totalled close to a hundred dollars. His current money management system was clearly not working.
So, we sat down and mapped out his spending behaviour, how he withdrew his money and where he thought savings could be made (I know this sounds torturous, but it really isn’t that bad!). His problem, like that many of us face, was the convenient ways that banks allow access to accounts. Limiting this access can help reduce impulse spending (an area in which I have ample experience! I have a reserve bank account that is solely online and I have access only via the internet, so I can’t just enter Saba and shop).
Many banks offer online accounts; often these have no fees, as there is no paperwork and they can be setup without ever walking into a branch. Simply visit the appropriate website and follow the prompts making sure you read to discover any hidden fees or charges. With this new account, you can’t withdraw money without a computer and internet access, no matter how beautiful the shoes are!
Returning to the example of my friend, we selected a suitable online savings account and seeded it with ten dollars. This may sound like a nominal amount, but that was the key. It made little impact on his current spending pattern and was therefore sustainable to deposit an additional ten dollars each week. Four months later, he had established a small but essential safety net for any future occasion where he may be caught short due to a sudden infl ux of expenses. Should such an expense arise, he is able to access the money and prevent the large and often punitive penalties that banks and other institutions may apply.
The moral here is that, like dieting, the key to saving money is not to crash save by cutting out all spending, shopping, socialising etc. As with any extreme behaviour, the initial burst is hard to maintain and often results in an even worse binge back into the original behaviour. Small, simple approaches that are based upon realistic and sustainable changes will have a far greater chance of long-term success. As changes become habit, the amount of monthly savings can be slowly increased.
