It’s Spring! As well as spring-cleaning your house, putting away all your winter clothes and decluttering your garage, it’s a great time to spend some time reviewing your personal finances using these six easy steps:
1. Review your past three months spending to budget. Are there areas in your budget where you have overspent? Have fixed costs and utility bills increased? 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?
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 www.pocketsmith.com 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 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 a savings plan for Christmas and holidays. With just over three months to go until December, you need to have funds set aside in a savings account for what can be the most expensive few months of the year – remember to include gifts, entertaining and school holidays.
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.”