Author: Michelle Griffiths, Partner, TAG Financial Services
So many financial planners and accountants will espouse the benefits of good budgeting – and I don’t disagree per se, but I find that for most people it does not work. It’s like dieting, you might be able to stick to it for a few weeks or months, but what is far better and likely to give you longer lasting results is the small changes that you make.
We need to come at this from a different angle and acknowledge that good money management is just as much about the thoughts that you have about money, as it is about what you do with it.
Here are my tips that can help you achieve your financial goals, without budgeting:
1. Get clear on your WHY and your financial goal (using SMART goal setting)
Having a goal or a particular target is always a great place to start. You might even start small and work your way up to larger goals so that you can experience some wins along the way. Or, if you have a large goal, make sure you break it down into smaller checkpoints so you can celebrate your journey towards achieving your goal. Starting with saving for your next holiday, or a deposit for your first home and then building up to the likes of paying off your mortgage. Naturally, the last two will likely take you more than 12 months to do and so you want to make sure you have some milestone goals you can tick off along the way.
- Take a moment and make a note of what you want to save for.
- You can be focused on your personal finances or your business, or both.
- Make sure it is important to YOU as this will empower you more than a weak goal.
- Infuse the goal with emotion and the desire that you want to achieve it.
- Be SMART with your goals – Specific, Measurable, Achievable, Relevant, and Time-Bound.
2. Expand on why your goal is important to you – make it personal
To maintain the commitment to your WHY, it needs to be important enough to you that you stick to the processes that we will build next over a long period of time. Having a strong WHY will make it easier when things get difficult to stick to your plan. You will keep reflecting on how you are getting closer to your goal rather than focusing on what you are ‘missing out’ on.
To expand on your why I want you to give it some more context and purpose:
- What would it mean to you to achieve your goal?
- How will it make you feel?
- How will it change your life?
- What sort of person will you be or need to be to achieve this goal?
- Is this the type of person that you will feel proud to be?
3. Share your goal with someone
Is there someone who will share this goal or journey with you?
Get them on board with answering these questions as well – it is always easier if you have someone that you can share this journey with. If not, is there a friend who might have their own separate goals that you can share and spur each other on?
- Sharing your goals with someone else once again helps provide you with an accountability point and helps you stay on track.
4. Set up a separate savings account
A great place to start is to set up a separate bank account to put your savings in. One that is separate from your everyday account. Some banks offer interest bearing accounts that reward you with higher interest rates when you deposit into them regularly and make no withdrawals, so these are ideal for our purpose.
If you have a mortgage already, see if your bank can set up an ‘offset account’ that you can use for these savings.
- Commit to making regular deposits into this account.
5. Make your savings commitment happen automatically each pay cycle
Make sure that you match your regular savings with your regular income. If you get paid monthly, then your savings go in monthly (the day after your payment is deposited). If you are paid weekly, then pay into your savings weekly, and so on. Have the savings deducted from your account so that this happens automatically, or better still if your employer will pay into multiple accounts then set it up so that you never see the savings money at all – it just goes straight into the savings account.
- This is known as ‘paying yourself first’.
- It is your top priority, and the other bills and commitments will be met somehow but you will always start with paying yourself first (you will work out how to pay the telephone bill!!).
6. Set up tools so that you can track how much you spend and where
Another key to this process is to understand where you spend your money and to make more conscious decisions about this. There are several apps that you can use for free, or your bank may have an expense tracking tool that you can use. The idea here is to start using these tools to identify where you may have ‘financial leakage’ that you can attend to.
Let’s face it, we all have financial leakage in our lives –it is about trying to re-direct these into your savings plans instead.
- ‘Financial leakage’ is a very personal thing and encompasses anything that you spend money on that does not provide you with value or add to your standard of living.
- For some people buying a coffee every day may be something that they get a lot of enjoyment from, whereas someone else may do it just out of convenience. The latter would fall into the category of financial leakage.
- Try to find one or two things to focus on each month in your spending patterns that will help improve your savings capacity, without reducing your quality of life.
7. Set up your milestones, keep yourself accountable along the way, and celebrate your success
Keeping your enthusiasm and commitment along the way is not always easy, so it is important to acknowledge your successes along the way and reward yourself. Now, that doesn’t mean that all your good habits get cast aside. You can still make your rewards financially prudent, but make sure that you get some joy from them. Maybe when you get to a certain milestone you take a day trip to a place where you can go for a special walk or hike that you have always wanted to do. You might choose a celebratory meal with your goal partner – you might even choose to eat in.
- It is important also to celebrate your progress.
- If you don’t reach your goal quite as quickly as you wanted to, this is not failure. You are still working towards the goal, and you will get there much faster than if you didn’t have a goal in the first place.
- Make sure you keep a record of your starting base and then your various milestones so that you can reflect on your progress.
The journey that you are on with this process is something that can be useful for any financial goal, but also for any stage of life. Understanding how much you spend and making more conscious decisions on that, as well as reducing your financial leakage is a mindset that will serve you well for a lifetime.
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Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686). Copyright 2022. Please do not reproduce without the expressed written consent of the author.