February 23, 2019
Home is where the heart is, and usually where the debt is!
The great Australian dream is alive and well! We all want to own our own little piece of heaven (or Australia) and we strive to do it. Once we tick that goal off our list, being debt free is often our next big goal.
In fact, when I ask my clients about their wealth journey – where they are starting from (the financial position they are in now), and where they want to end up in their retirement, the top four things mentioned are:
- They want to be debt free (pay out their home loan) and have a nice car
- They want a comfortable retirement with enough money for great lifestyle choices
- They want to be able to travel (often) both in Australia and overseas
- And they want to be able to help their kids (let’s face it, family is most important)
Sound familiar? Most people think this is out of reach and they feel to achieve these goals in the future will cause too much financial pressure now and ruin their current lifestyle.
Surprisingly, this assumption is usually wrong. It is amazing the difference that doing your banking properly can make to your bottom line. Often people just need to be shown how to do their banking differently, how to find leakage and wastage in their daily money habits and how to create an easy plan to achieve these goals.
It can happen much sooner and with a lot less stress than you can imagine. Let me explain…
Doing your banking differently
We have been taught from school age how to do our banking. We are told we need to bank money into savings accounts, accumulate interest (very low interest I might add) and to budget and go without to save for the future. It’s a little bit like having a diet for our money (and we all know diets just don’t work).
Then we get loans for cars, we get credit cards for the things we can’t afford right now, and get a 25 or 30-year loan for a home, paying interest to the bank and at a much higher rate than we are earning on our savings.
Before we know it most of our money is going out as soon as we get it paying for all of these loans and credit cards and we struggle to live on the balance. Then, something happens and we either need to borrow more, or put more on the credit card and we have even less to spend and then the cycle starts again.
Sound familiar? This is a big part of what I call ‘leakage and wastage’. The stuff that happens to your money – the money is going on ‘stuff’ that doesn’t give you any pleasure. Let’s look at that in more detail…
Leakage and Wastage
My definition of leakage and wastage is money being spent on things that give you no pleasure or lifestyle. Credit card interest is one of the biggest causes of leakage. For example – you buy something big that you don’t have the cash for now, or pay for a holiday or worse still fill a credit card with absolute trash, and then the ‘never ever’ plan happens. You start making payments but will ‘never ever’ pay it off.
If you pay off the minimum balance, you can take about 20 years to actually pay for a holiday. That can mean a $5,000 holiday could end up costing you more than $25,000!! Even when you do pay extra in, you often re-spend it and you get stuck in the same financial position.
Areas of wastage
Wasting food – this is the biggest one. Buying groceries and then throwing them out. We all do it. How heavy is your wheelie bin when you push it to the footpath?
Buying lunch and coffees – Again, a little planning can mean you can save thousands of dollars a year just by taking your lunch to work, or having a good coffee machine at home, or even investing in one for work – a few of you could put in together and buy one, or ask the boss to.
Fast food – Buying takeaway food because of lack of time and disorganisation. We all get busy and tired; a little bit of planning can mean there are meals in the fridge or freezer for those days.
Clothing – We look in our bulging wardrobes and don’t have a thing to wear. How many ‘bargains’ have you bought this year that you rarely wear?
Online shopping – Finding lots of online ‘bargains’ that sit in drawers and cupboards.
Clutter – Going shopping or to the markets and buying ‘junk’ that you don’t need.
Subscriptions – locking into subscriptions and reoccurring charges for apps, online magazines and programs that you start using then ‘fall off the wagon’ but you forget to cancel the renewal cost.
Making a plan
Once you have your banking sorted, you will be giving the banks much less of your money in interest and fees and your money will be reducing debt fast instead.
Debt reduction does 4 things:
- Reduces debt;
- Increases equity;
- Increases serviceability – the two things a bank looks for when you want to buy an investment property; and
- Improves your lifestyle. As your debt reduces, so does the amount of interest you are paying. This extra money can go back into your lifestyle spending. That means more holidays, more fun, more family time.
By finding the leakage and wastage, your everyday expenses go down. Meaning you have more money to spend on the important things, like dining out, socialising with friends and yes you guessed it – more travel.
At Think Money, we teach our clients to become financially self-sufficient and wealthy. We teach our clients how to own and manage the holding costs of multiple properties, and how to retire with enough money for a great stress-free lifestyle.
The funny thing is, all of this starts with learning the basics of money management, debt reduction and how to stop the leakage and wastage from their everyday life.
We teach goal setting, menu planning and how to save thousands of dollars a year in food waste.
We use programs like My BIG Money Goal, and our Think Budget App. We have Budget Bootcamp where we treat our money like a health and fitness program and have 12 week challenges and mini sprints. But most of all we have fun with it.
Life moves fast, look at how fast last year went, and this year is speeding by as well. It is so easy to get on the mouse wheel of life and find you are spinning the wheel so fast, but getting absolutely nowhere. How much has your financial situation changed in the past 12 months, or even 5 years? It might be time to see how you could make a difference to your life and finances. Remember Einstein’s famous words: the definition of insanity – keep doing the same thing and expect a different outcome.