ARTICLES > Ten things to do to get your finances in order.
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Ten things to do to get your finances in order. For a long time now the FORTIfi Team has been urging our clients to live by the three cardinal rules of personal finance:• Spend less than you earn • Pay off debt • Don't go into det This article expands on those rules - do these ten things and you need never worry about your finances again. ► Ten things to do to get your personal finances in order: 1. Know what you’ve got and work to increase it. A person’s net worth is the value of everything they own minus everything they owe. In other words; assets minus debt. Many people do not know what their net worth is. Some would be surprised at how high it is, others shocked at how low it is. Set goals and plans that will enable you to increase your net worth. 2. Budget! You’ll have heard us quote this before – in New Zealand today the average person is spending 17% more than they earn, and that does NOT include mortgages (Dept of Statistics figure). The reason people overspend is because they have not calculated how much money they are able to spend without going into debt. The answer is simple; do whatever you have to to ensure you spend less than you earn.  3. Don’t go into debt! Now, it’s difficult to never go into debt but it must be avoided unless absolutely necessary. Borrow only what you absolutely need to e.g. to buy a house. And, when you borrow money, make sure you know the true cost of borrowing that amount. Once interest payments and fees are added onto a purchase it can make for a very expensive item!4. Pay off debt. This is one of the fundamental principles of good personal finance; pay off debt as quickly as possible. Start with the debt you’re paying the highest interest on. This will usually be credit-card and hire purchase debt followed by personal loans and mortgage debt. Remember, the faster you repay debt the better off you are long-term. Paying just the minimum repayments on your debt means you pay thousands of dollars in unnecessary interest. 5. Save for an emergency fund. The killer for the personal finances of many people comes when their washing machine dies or their car breaks down or some other unexpected crisis arises. With no savings we often go into debt that can that haunt us for a long time. Having three month's income as savings can overcome such an eventuality. NOTE: this is a good thing to do even if you are paying off a mortgage. However, if you have high-interest debt, pay that off first. 6. Set financial goals and save for them. Most people have dreams and goals. Problem is we don’t strategise to achieve them. When we decide it’s time for a new car or an overseas trip we go into debt to pay for them. Set goals, price them, work out how much you need to save per month to achieve them, and go for it! 7. Protect what you’ve got. We all struggle with the I-word = Insurance. If we never make a claim it can seem like money thrown away. However, many people have entered into a lifetime of debt because of inadequate insurance. Here’s the general rule of thumb – anything you need but cannot afford to replace with cash if you lost it should be insured. This includes your ability to earn money. (FORTIfi give free no-obligation insurance consultations; contact us to make an appointment).  8. Make a financial plan for retirement. People often ask, when is the best time to save for retirement? The answer is “now.” There are two basic mistakes people make; the first is that they leave it too late to begin saving for their retirement. The second is that they assume their family home is an adequate investment for their retirement when it is only part of what they well actually require. A great way to save for retirement is through a workplace savings scheme, especially if your employer will make a contribution too.9. Invest! Make your money work for you. There are many ways to invest other than property or the share market. We all need to determine which is best for us. Simply eaving money idle in the bank, however safe and secure it may be, is not maximising the earning potential of those savings.
Click the link to read the FORTIfi Resource Centre articles on Investment.
Investment Part ONE Investment Part TWO Investment Part THREE Investment Part FOUR 10. Teach your kids about money. There is a definite lack in our school system as regards the teaching of basic personal financial management. Teach your children about budgeting, saving for things they want, how to write cheques, the true value of the things we buy etc. It’ll pay off in the end – maybe they’ll help you build a ‘granny-flat’ on the back lawn of their mansion!! |