Five rules of money management

Key takeaways

  • Having a savings plan and an appropriate level of insurance cover can help insulate you from financial stress.

  • Tracking expenses gives a complete picture of where savings can be made, helping reach your financial goals more quickly.

  • Avoid accumulating debt where possible, but where it’s necessary, prioritise paying off debts with the highest interest rates.

  • Continuously improve financial literacy by reading books, attending seminars, and following reputable financial websites. Knowledge is power!

Just like physical fitness, achieving financial fitness requires discipline, knowledge, and effort. But don’t worry, because once you have those skills in your armoury, the path to financial freedom will start to unfurl before your eyes.

No matter your income level or financial goals, everyone can benefit from developing strong money management skills.

Here are five rules of money management that can help you build a solid foundation for your financial wellbeing:

1 – Create a budget and save regularly

Establish a budget that outlines your income, expenses, and savings goals. Stick to this plan and track your spending to ensure you’re living within your means.

Make saving a priority by setting aside a portion of your income each month. Aim to save at least 10 percent (and ideally 20 percent) of your earnings for both short-term emergencies and long-term goals.

That’s not to say you should be overly frugal either. If you are so disciplined with your spending that you leave little or no budget for fun activities, it is unlikely that you will maintain that habit for a prolonged period, so don’t forget to treat yourself and your loved ones.

2 – Pay yourself first and minimise debt

When wages are received, try to allocate a portion to savings before paying bills or spending on discretionary items. This helps prioritise your financial future and can become so habitual that you’ll hardly notice the money going, but you can be pleasantly surprised at how quicky your savings grow.

Most of us need to take on debt at some point in our lives, particularly for big ticket items such as a house or a new car, but try to avoid accumulating high-interest debt whenever possible. Try paying off existing debts systematically, starting with those with the highest interest rates. Use credit responsibly and only when necessary.

3 – Invest for the future and establish an emergency fund

Consider investing. Some investments include shares, bonds and real estate. Selecting an investment will depend on your financial situation and risk tolerance.

Don’t just focus on short-term outcomes. Long-term goals, such as retirement, should also be given due prominence and consideration in your investment strategy. Seek professional investment advice if required.

Another key aspect to consider when investing for your future is to make sure you’re covered in the event of a major setback.

Ensuring you have adequate insurance coverage for things such as health care, home, motor, life, and income safeguards should your finances m take a hit when unexpected events occur.

Consider building an emergency fund that covers up to six months’ worth of living expenses. This fund can provide a safety net during unexpected financial setbacks, such as a prolonged period of unemployment or illness.

4 – Track your expenses and avoid impulse spending

Consider keeping a record of all your expenses to gain insight into your spending habits. Identify areas where you can make adjustments to save money, such as shopping around for better insurance deals, having more home-cooked meals rather than expensive takeaways, or holidaying in your own country rather than overseas.

Before making a purchase, consider asking yourself whether it aligns with your financial goals. Implementing a waiting period for significant purchases helps you to avoid impulsive buying.

5 – Keep abreast of all things financial and set realistic investment goals

Stay informed about personal finance topics, investment strategies, and money management techniques. Education equals personal empowerment. Continuously improve your financial literacy by reading books, attending seminars, and following reputable financial websites. The more you know, the better financial decisions you can make.

Consider defining specific, measurable, attainable, relevant, and time-bound (SMART) financial goals. Break them down into actionable steps to stay motivated and achieve success.

So, take charge of your finances, embrace smart spending habits, and enjoy watching your financial dreams transform into a rewarding reality.

This article has been prepared by NULIS Nominees (Australia) Limited ABN 80 008 515 633 AFSL 236465 (NULIS) as trustee of the MLC Super Fund ABN 70 732 426 024. NULIS is part of the group of companies comprising Insignia Financial Ltd ABN 49 100 103 722 and its related bodies corporate (‘Insignia Financial Group’). The information in this article is current as at August 2023 and may be subject to change. This information may constitute general advice. The information in this article is general in nature and does not take into account your personal objectives, financial situation or needs. You should consider obtaining independent advice before making any financial decisions based on this information. You should not rely on this article to determine your personal tax obligations. Please consult a registered tax agent for this purpose. Opinions constitute our judgement at the time of issue. The case study examples (if any) provided in this article have been included for illustrative purposes only and should not be relied upon for decision making. Subject to terms implied by law and which cannot be excluded, neither NULIS nor any member of the Insignia Financial Group accept responsibility for any loss or liability incurred by you in respect of any error, omission or misrepresentation in the information in this communication.

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