Six easy steps to sort out your personal finances and get on track financially

None of us are born with money management skills and unfortunately very little time is spent on this subject at school. And, because no-one likes to talk about money, it’s easy to fall into some common traps.

Here are six easy steps to sort out your personal finances and get on track financially:

1.  Review your past three months spending. Download your bank statements and categorise your spending. Are there things that you have overspent on or haven't got a clue where the money went? Are you paying for subscription services that you don’t actually use? Are you spending beyond your means? How much credit card interest are you paying by not repaying your balance in full each month? Pick 2-3 areas that you will focus on over the next month. It could be reviewing your utility providers to see if you can get a better deal, reducing the number of takeaway/restaurant meals each week, having a 'no spend' day once a week, or only using cash for discretionary spending.

Many banks offer apps to regularly track your spending which can make this a much less painful exercise than scrolling through bank statement pages. Or, you could use a web app like  where you can import your bank transactions every month. After the first month of use the app ‘remembers’ recurring transactions and can auto-allocate them to the same spending categories used previously. This is a great way to monitor your spending and set monthly goals/targets to tackle over-spending in specific areas.

2.  Update your Statement of Position. Documenting your assets and liabilities every six months or so is a great way to track your progress at paying down your mortgage and/or building up your financial assets for the future. Six months is also a good frequency to check your KiwiSaver balance, especially if you’re in a growth-oriented fund. There’s no point in checking more regularly than this, especially if you have a long time horizon. Once you have an investment strategy, don't be tempted to change based on media headlines, market noise and what others are doing. It has been scientifically proven that changing is more likely to create worse outcomes in the long term.

3.  Set up multiple bank accounts. Most banks allow you to have multiple bank accounts which you can use for different purposes. Each pay day, transfer a pre-determined amount from your everyday bank account into designated accounts for irregular spending - that way, when you have to visit the dentist, or get your car serviced, the money is already there. Make sure these accounts can't be accessed via eftpos - which has the added advantage of having your money protected in the event that your card gets lost or stolen. 

4.  How’s your emergency fund holding up? You should have funds set aside in a bank account that you can’t easily access unless there is an emergency (you could even use a different bank if you think that will stop you from raiding it). What could constitute an emergency? Needing to pay an insurance excess, replacing the washing machine, fix a leaking roof. It’s not for a ‘pick me up’ shopping spree or buying tickets to an All Blacks test. Set an initial target of $1,000, pay off all short-term debt, then turbo-charge your emergency fund until you have three (or even six months) of living costs set aside.

5.  What’s your wildly important financial goal (WIFG)? Are you saving to buy a house? Paying off your mortgage or saving for retirement? Check in with your financial adviser to check that you’re on track. Now that you’ve got a clear picture of your spending, you could consider the impact of making paying more off your mortgage payments or making extra savings beyond KiwiSaver. Even paying off an extra $20 per week on your mortgage can have a big impact in terms of reducing the term of your mortgage.

6.  Make it a habit to sit down every month for fifteen minutes or so to check in with your finances. Review last month’s spending and decide on two or three things that you’ll focus on next month. Do it together as a couple and involve your children in conversations about money. None of us are born with money skills, and as Dave Ramsey said, “You must gain control over your money or the lack of it will forever control you.”

August 2020. Photo by Green Chameleon on Unsplash