Money & Life contributors draw on their diverse range of experience to present you with insights and guidance that will help you manage your financial wellbeing, achieve your lifestyle goals and plan for your financial future.
Your home may be looking minimal and serene in 2019 thanks to author and TV host Marie Kondo. But could your finances do with some decluttering too? Find out how to go about it with our guide to simplifying your budget, bank accounts, super and debts.
Ready to discover the life changing magic of simplifying your money management? Taking the lead from minimalism guru Marie Kondo, we bring you a step-by-step guide to applying decluttering principles to your finances.
Less really is more
Of course, we’re not talking about giving all your money away to make life simpler. But simplifying your finances will almost certainly make it easier to stay on top of money matters. When you’re dealing with too many bank accounts, bill payments, super balances and debts, you’re far more likely to lose track of what’s going on with your money. And that means things can fall through the cracks, which leads to missed opportunities as well as long-term problems.
So paring back your finances is the first step to feeling capable and in control. And once you’ve simplified things, it’s that much easier to keep money matters organised, through automation and regular monitoring.
1. Budgeting based on your values
Just as Marie Kondo lays down the challenge to only keep things that bring you joy, it’s just as important to prioritise things we value when spending money in the first place. Understanding what you value most, and then taking a good look at where your money is actually going can be a powerful way to shift your spending habits.
This is something John Purl, Senior Financial Adviser for Affinitas Capital has found to be true for his clients. “You’ll struggle to get anyone to stick to a cash flow, budget or savings plan, if it does not align with their true values,” he says. “The values conversation has the greatest impact on motivation to make changes.”
Although it can help to have different bank accounts for savings goals, and another to make sure all your regular expenses are covered, keep multiple accounts to a minimum to save time and effort. Monitoring balances, interest and outgoings for so many accounts just makes things complicated.
Having four separate accounts should be enough for you to manage income and expenses with ease and keep everything simple and smooth with your cash flow and savings. The majority of your money will go into the household account for everyday expenses, with two savings accounts, one for short term goals, like saving for a holiday, and another for your financial future. Funds from this third account might go towards a rainy day fund, your super or some other type of investment. And having a fourth account where you can channel about 10% of your monthly income to spend on yourself, guilt-free will allow you to save for the future without missing out on enjoying yourself, here and now.
The fund you’re with now can also help you track down super balances held in your name and consolidate them into a single fund. Not only will consolidating super give you fewer funds and statements to keep track of, it can also save you a fair amount in fees. Before you decide to close any of your existing accounts, it’s important to check whether you’ll still have the right level of insurance cover as you’ll often have personal insurance policies – such as life or income protection insurance – arranged and paid for through each super fund.
Clearing multiple personal debts once and for all can seem like an impossible task. As you struggle to get back to zero, temptation can creep in to just borrow more and become resigned to debt as a permanent part of your financial situation. One option is to consolidate your personal borrowing into a single repayment to make it easier to chip away at the outstanding balance. Your mortgage provider may be able to refinance your home loan so you can bundle debt repayments with your mortgage and benefit from a lower rate of interest as a result.
But if you don’t have a mortgage or you’re looking for a simple way to pay down personal debts faster, Peter Foley CFP® and Director of Thirdview suggests trying one of two tried-and-tested approaches. “The avalanche method is probably better known and involves paying as much as you can towards the debt with the highest interest first,” he says. “The thinking here is that you’re saving yourself more in interest. Then you have the snowball method which prioritises debts in order of size, putting more of your repayment budget towards the smallest balance first. When this debt is settled, you can redirect more of your cash flow to the next smallest so you build up momentum and that’s where the snowball effect comes in. The satisfaction and sense of achievement you’ll get from having one less debt to deal can also give you the motivation you need to keep going on your mission to get completely debt-free.”