What do your finances look like?
Can you believe that today is the first day of Spring? Looking outside and speaking with friends abroad, I guess Spring is still in winter hibernation. Is that a reason to also keep your finances in hibernation? No! Use this week to get a start on getting your finances in order.
Collect all your account information. A friend of mine shared her tip with me and I love it. Every year, she sits down and updates all her bank account and credit card details. This includes her bank’s name and address, account number, IBAN, sort code, etc. She prints this summary page off and keeps it as the first page within her “important document” folder. In case something happens to her, her family knows immediately where to look and who to contact when it comes to finances.
Face any debts. This is for many people one of the biggest challenges when dealing with their finances Knowing you are in debt is one thing, but just how much is often ignored. Start by putting all your bills, credit card statements, loans, store credits, mortgage, etc. on the table. List each amount, the debtor and the interest rate. Are there any small amounts which you can pay off this month or next month?
There are 2 common approaches towards paying off debt. Individuals like Dave Ramsey advertise the “debt snowball” where you sort your debt by lowest to highest amount. The lowest amount gets paid off as soon as possible. With the momentum won, his theory is that you can find motivation and ways to pay off the second lowest debt, then the third lowest and so on.
Other individuals like Suze Orman recommend to tackle your debt with the highest interest rate, regardless of its amount, first. Next, you’d pay off the debt with the second highest interest rate and so on. I can see the advantage of this approach – you don’t want to spend more money in interest than necessary. Yet, if it’s a larger amount, it may be a longer process, leaving you to question your approach at times.
One possibility is to pay off the lowest amount of debt, use that momentum and face the debt with the highest interest rate next. Another possibility is to actually calculate how much you’re paying for each debt in interest (you can use minimum payments as your worst case basis) and chose each debt you want to pay off. This may give you more focus and the feeling of being back in control.
Review your spending habits. Do you know where your money goes every week or month? If you are unsure or you don’t track your spending, take the next 2 weeks and write down all your expenditures, everything about your finances. If there’s something unusual going on, like a family holiday, choose another week.
As you’re tracking your outgoings, are there any surprises? Maybe you didn’t expect the amount for eating out to be as high as it. Once you know where your money is going, you can determine whether you’ll need to make any adjustment. It’s very tempting out here: Brunches on Fridays, a new outfit cause it’s on sale, some fresh flowers and a nice cake for the afternoon. My current temptations are LEGO bricks.
If you live within your means and hopefully also have some money set aside for emergencies, retirement and possibly other big plans (e.g. university fees for your children), do you want to make any changes to your spending?
I’ve seen individuals out here who’ve spent more than they earned. Their finances are a mess and it’s a real challenge to pay off debt when you’re wanting to leave. If this may be similar to your situation, consider making some changes now. Working with a budget can be a start and you can learn how to create a budget here. Professional advice from a qualified financial adviser can be a step you want (or need) to take in addition.
Prepare for the future. Many of us come to this region to benefit from the tax-free salaries. While there’s generally no pension and end of service gratuity is not equivalent to retirement contributions made in other countries, many of us don’t save enough. Why not start today? Define your savings goal, for example, buying that holiday home in Southern Italy within the next 5 years. Knowing what you’re saving for helps you achieve your goal. Putting a picture up as a daily reminder is also a good supporter.
Once you know what your goal is, what realistic saving can you set aside every month? Create a savings plan and automatise your monthly saving contributions into a separate savings account. If the money stays in your regular account, chances are high you’ll use that money… when no one is looking and bang, it’s gone. Also don’t wait until the end of the month to make these transfers. Have the money taken out the same day as your pay check is due.
Over the next few weeks, I’ll be writing more about getting your finances organised. With that being said, please do keep in mind that I’m not a financial advisor and today’s and future posts are not to be viewed as financial advice. Rather, they’re a collection of tips which have worked for me and they are meant to raise awareness about your own financial world. If there’s a specific topic dear to your heart, email me and I’ll try to incorporate it in future posts.
Until next time,