While it’s important to increase your earnings and try to bring in additional cash flow, how you manage your money and how much of it you save can be just as important, if not more so.

In this article we take a look at how to manage your money in a way that leaves more room for savings as well as how to set and hit financial targets.

How to manage your money

One of the first steps to managing your money is to review your finances to find out where you’re currently at. This means that you need write down your income and expenses, not forgetting annual expenses.

Once you know what’s coming in and what’s going out, you will know how much money you have available for saving and investment purposes.

Defining your financial goals

Defining your financial goals is crucial to financial success and will give you a purpose for not only sticking to a budget but also staying away from your savings.

Financial goals can be long term, midterm as well as short term and must be very specific. For the long term goals you should define milestones that include a date and goal to ensure your can evaluate your progress and stay on track.

Examples of long-term financial goals

  • Qualifying for a home loan and purchasing a property
  • Repaying your student loans or other debts
  • Buying or starting a business
  • Hitting a set goal for retirement savings or for your Superannuation
  • Purchasing an investment property
  • Saving a certain sum of money
  • Developing and maintaining a good credit rating
  • Saving for your children’s education
  • Having an emergency fund with 6 months worth of expenses

Examples of mid-term financial goals

  • Sticking to your budget for a 6 or 12 month period
  • Improving your credit rating
  • Saving for a wedding, for a holiday or large purchase
  • Saving for a deposit to purchase a home
  • Saving to investing shares or bonds
  • Paying off short-term loans and credit cards
  • Staying clear of new debts for a set time period

Examples of short-term financial goals

  • Creating a budget
  • Checking your credit rating and understanding what it means
  • Sticking to your weekly or monthly budget
  • Reducing spending on certain budget categories like entertainment
  • Making all minimum payments on your debts
  • Saving for purchasing an item
  • Avoiding using your credit cards or taking on new debts

Determining which financial goals to pursue

Since we all have a limited amount of income it’s important to determine which financial goals are most important to you and which you want to pursue.

Having 10 high level financial goals may become 20 medium term goals and up to 50 short term goals – now that’s a lot of saving and planning! This may be very difficult to achieve since each of these goals will require some income to be allocated to their achievement.

This is why you should try to focus on only so many goals as you can realistically achieve within the time frame that you’ve set. If you’re unsure, select a few of your most important goals and add more as you go along and find that you’re coping well.

Creating & sticking to a budget

Managing your money begins with a budget. Budgeting effectively ensures that your spending is under control and that you save with purpose.

Developing an effective and realistic budget that will lead you towards achieving your goals is crucial to financial success.

One of the most important parts of a budget is the money that you save above and beyond your Super. This is the money that will ultimately lead to financial stability and wealth.

Staying clear of consumer debt

Buying only what you can afford sounds simple and straight forward but is one of the financial concepts that many Australians, both young and old, struggle with.

Consumer debt is a billion dollar industry and is one of the main causes of financial hardship in the country. Staying clear of consumer debt is one of the best ways to develop good financial habits and stay away from dream killing debt.

If you already have a range of consumer debts, it’s time to sit down and create a debt repayment plan which you must integrate into your weekly or monthly budget.

Your debt repayment plan should focus on paying down the most expensive debts first but, depending on your individual situation, you can also try to repay those debts with the smallest balance.

Top tips for developing a budget

  • Always develop a debt repayment plan if you have debt to repay
  • Consider using savings to repay debt, interest on credit will always be higher than any savings account returns
  • Use bank statements and take a close look at actual spend rather than estimating
  • Once you’ve developed a clear picture of your monthly spend always try to make notes of any expenses that you can reduce
  • Look at downgrading and cancelling contracts and memberships you no longer need or use
  • Find ways to spend less and use any excess cash to pay down debt of save for investment purposes
  • Download a budgeting or spend tracking app to make it easier to keep track of your spending and stick to your budget
  • Find a budgeting tool or method that works for you by trying a variety of options

Spending less & making saving a priority

Overspending on non essentials is one of the main reasons that we struggle to keep on budget and end up having to take out loans and use credit cards to make it through the month. Learning how to live within or, ideally, below your means is crucial to ensuring financial stability and wealth.

Whether this will take the form of going out less and eating at home more or simply deciding to stop buying things you don’t really need, the less you spend the more money you will have available to build wealth.

Top rated budgeting apps for Australians

  • Pocketbook budgeting app
  • Spendee budgeting app
  • Money Brilliant budgeting app

Building long term wealth

Whether you decided to invest in property or invest in stocks, shares or bonds, using savings to purchase assets and invest is the best way to develop long term financial wealth.

Having the capital to invest always begins with savings which are a direct reflection of your ability to reduce your spending and exercise financial discipline. Savings must be an integral part of your budgeting and should form part of both your short and long term financial goals.

This does not mean, however, that you cannot use savings for other things such as large purchases and holidays. Life is meant to be lived and we can’t simply be all work and no play.

If there is any luxuries or specific events or experiences you want to enjoy, open up a savings account and start saving towards the goal.

Learning to save for things that you want will help you develop financial discipline and is always a better option than using credit since you won’t be paying any interest and you’ll be the one controlling exactly how much you save and then how much you save.