1. Spend less than you earn
Some might say, ‘this is easy to say but hard to do. But it’s not actually hard to do. It just requires discipline. And the easiest way to be disciplined is not to require yourself to be disciplined.
Let me explain.
Imagine it’s been a long day, and at 9.30 pm, you find yourself heading to the fridge for a sweet treat. If your fridge contains a chocolate doughnut and a bowl of fruit, it will take some discipline to reach for the fruit rather than the doughnut. If your fridge only contains the fruit bowl, no discipline is needed!
You can apply the same principle to your spending by:
- Automatically transferring a portion of your weekly pay to a savings account.
- Not having a credit card.
2. Practice Self-Control: Pay With Cash, Not Credit
If you’re lucky, your parents taught you self-control when you were a kid. If not, remember that the sooner you learn the essential life skill of delaying gratification, the sooner you’ll keep your personal finances in order as a matter of habit.
One of the most important ways to exercise self-control with your finances is also very simple. If you wait until you’ve saved the money for whatever it is you need, then you can put all everyday purchases on a debit card instead of a credit card. A debit card deducts the money from your checking account immediately (with no additional fees), but a credit card—unless you can afford to pay off the balance every month—is a high-interest loan.
3. Don’t be afraid to rent
Renting has developed a bit of a bad name over the years, seeded by the refrain of ‘why would you pay off the loan on someone else’s investment’?
But there are many good reasons to rent:
- It allows you to try out living in an area before you commit to living there in the long term.
- Even with interest rates as low as they are now, it can still be cheaper to rent than pay off a mortgage, especially if you have housemates.
- It doesn’t lock you into a long-term commitment at a time in your life when it might serve you better to be unfettered.
4. Only put your money into investments when it’s right for you
Just like buying a house, investing is a good idea but only at the right time for you. You need to lock your cash away for a minimum of 5 years to get a proper return from investing. But if you really want to leverage the true power of investing (compound interest), 10+ years is a better time commitment. I generally advise that people don’t invest cash until:
- They have bought a home or saved up enough for a 20% deposit
- They have built a decent offset balance
- They have set a trajectory for paying off their debt at a decent pace
5. Start an emergency fund
One of the personal finance’s oft-repeated mantras is “pay yourself first.” No matter how much you owe in student loans or credit card debt, and no matter how low your salary may seem, it’s wise to find some amount—any amount—of money in your budget to save in an emergency fund every month.
Having money in savings to use for emergencies can really keep you out of trouble financially and help you sleep better at night. Also, if you get into the habit of saving money and treating it as a non-negotiable monthly “expense,” pretty soon you’ll have more than just emergency money saved up: you’ll have retirement money, vacation money, and even money for a down payment on a home.
6. Don’t benchmark yourself on your peers
It’s so easy to feel ‘left behind when it seems like all your friends are buying homes, going on big expensive holidays or are on a trajectory that seems way ahead of where you’re at.
You can’t be sure if your friends can truly afford their lifestyle, nor do you know what kind of debt they’re carrying in the background if your peers are financially secure and way ahead of where you are right now, good on them. But you are not obliged to keep pace.
7. Avoid bad advice: Beware
You can’t manage your money if you don’t learn how to. Other people will try to do it for you. Unscrupulous financial advisors are one example of someone who could be malicious. While others may be good-intentioned, they might not be fully aware of your situation. For example, relatives may make general recommendations about how important it is to own a house, even though you cannot afford to purchase right now.
Don’t rely on unqualified advice. Learn basic personal finance books to take control of your financial future. You can’t let anyone get you off-track once you know.