Doing your banking differentlyWe 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 WastageMy 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 planOnce 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.