Achieve your financials goals NOW through simple strategies!
If you are reading this, then you are probably interested in purchasing a property. Whether that be a single property, or you plan to build a property portfolio. Whatever your goal, money management is a crucial part of the process, without this you will be less likely to succeed. Effectively managing your cashflow can help you save for a deposit and be accepted for a loan. It also shows the lender that you can afford to borrow money and pay it back over time. Learning how to manage your money and grow your savings is a crucial step to achieve your long-term goal of making one of the largest and most stressful purchases of your life, if you are doing this on your own and not entrusting a buyer’s agent.
I want to discuss money management with you in more detail today. I want to get you thinking, “how can I do this better?”, “how can I reach my goals sooner?”. There are always options and solutions to improve your position. They will require time, energy, focus and consistency, however you will see progress if you commit yourself. This mindset can translate into every area of your life, it all depends on you, how much you want it and how hard you’re willing to work for it!
First and foremost, you need to determine what your goals are. This goal might not be to purchase a property. You might want to save for a holiday, save for a rainy day, save for a big event like a wedding or you might want to purchase a property. Whatever your goals, I encourage you to sit down, write them out, set an amount for each goal and the date you want to achieve this goal by. This helps to keep yourself accountable, track your goals and be able to measure you results.
For example, let’s assume it’s the first of January and your goal is to save $15,000 by the 31st of December. There are 52 weeks in a year, if we divide $15,000 by 52 weeks, that means your goal is to save $283 per week or $40 a day for one year. Now, I don’t know about you, but for me, focusing on saving $283 per week or $40 a day feels much more achievable than saving $15,000 a year! We have now set our goal and know what we need to do to achieve it. This highlights the importance of making measurable goals and having fixed savings targets. Remember that all you need to do is focus on the $283 a week or $ 40 a day and before you know it the yearly goal of $15,000 will be achieved. Remember how quickly a year can fly by!
Percentage Based Savings
Fixed savings targets are a great way to save for a short-term goal. However, when we are considering long-term savings, another method we could consider is percentage-based savings. This involves setting aside a percentage of your salary as savings consistently each time you are paid. For example, if you were currently receiving $1,000 per week in your bank account after tax, and you commit to a goal of saving 40% of this income you would be saving $400 per week. If you received a pay rise and you were now receiving $1,500 per week in your bank account after tax, saving 40% of this increased salary means you would now be saving $600 per week. This means that as your salary increases over time, so does your savings capacity!
The next challenge is to increase the percentage amount, so if you’re currently saving 20% of your income, can you increase this to 25%? If you’re saving to invest and are serious about achieving your goals, we want to get this percentage as high as possible. To put this into perspective, I have set my own personal goals and I am so focused and determined that over the last 5 years, I have been saving at least 55% of my net income. As my salary has increased, I have increased my savings capacity to 64% of my total net income to ensure I can achieve my goals and build my personal property portfolio.
Don’t get me wrong, this is not easy to do, and this can mean a lot of sacrifice at times, but it all depends on how determined and focused you are on achieving your long-term goals. Some would say I’m good with my money, others would say I’m a tight A##, I would say both statements are correct!
It’s a common occurrence when an individual gets a pay rise, and they find they aren’t saving any more money than when they were on their previous lower salary. Some find they instead increase their expenses now they have more disposable income. In some instances, they seek instant gratification, taking on personal debt or credit cards, sadly finding themselves in a worse financial position than before their pay increased. I come across many high-income earners who don’t value their money and spend it just as quickly as they earn it. Alternatively, there are many investors out there who are on modest salaries, however, understand the importance of effective money management focusing on a maintaining a cash surplus. You must understand that money is a vehicle whether you like it or not, and that you need to ensure you can manage this vehicle effectively to reach your goals.
The most effective savings method will ultimately depend on your goals and the timeframe for achieving these goals. The method that works most effectively for one person might not work most effectively for another. It is important to figure out what works most effectively for YOU and what will help YOU to achieve YOUR goals sooner.
This is the first blog of a 3 part series where we discuss all things relating to your finances and improving your cash surplus. Keep an eye out for our next blog where we discuss strategies that you can implement to increase your income, followed by our last blog in the series where we discuss ways that you can look to reduce your expenses to ultimately improve your cash surplus each and every week.