Nov 11, 2020

Our Insights

Has the global pandemic given you a wakeup call? Pre-COVID, many people had been building bad spending habits and splurging their wage on wasteful living – and it’s not just young people!

After going through a period of having no choice but to stay inside, it’s hit hard just how much we could be saving and achieving if we’re more conscious of where we indulge and spend.

For many, the taste of increased savings during the pandemic has been enough to put them off of their old lifestyle for good, as they now look to permanently change their spending habits and better use their resources.

So you're ready to 'grow up'. But what do you do next? Here's key things to think about as you transition to financial maturity.

Change your mindset

Gone are the days of carefree spending and making decisions in the emotion of the moment. You need to have the dedication and willpower to make these lifestyle changes and maintain them. Ideally, you need to change your mindset towards greater consciousness of spending and thorough consideration of the value of each purchase you make. 

Create a plan

Firstly, before you even get to the finances, consider your dream lifestyle. What does your life look like in 5, 10 and 20 years time? What are your life goals? What is your ideal lifestyle in retirement?

Once you know what you're striving for, find out how much you'll need to achieve your ultimate lifestyle, and how much you have already. 

Now that you've identified your numbers, the next step is creating a wealth building strategy. Essentially, your plan will be about working towards this final figure and ticking of every financial milestone you set. 

Create new habits

Instilling new habits from the beginning will ensure you can maintain financial maturity in the long run. 

Budgeting is an absolute must for everyone. Allocate your monthly earnings to different areas, whether it be bills, savings, investments, or everyday spending, and stick to it. If it's difficult to keep within your budget, get into the habit of switching to cash and only carrying around the necessary amount so you're forced to stay within your means. Although, as more businesses and venues slowly turn cashless, relying on cash is easier said than done. So, the alternative is using a debit card with only your spending allowance and a small buffer accessible and only turning to your credit card when necessary. 

Keeping up with your finances is an ongoing task. You should be tracking your spendings and evaluating your outgoings at the end of each month. This will help you stick to a budget and also identify any spending patterns that need to be changed, or areas where expenses can be minimised. 

Automated savings is another popular process which effectively takes the responsibility off of you to manually transfer your wage into a savings account. Let your bank take care of the process, so you don't forget or aren't tempted to spend and transfer less.

Finally, it may be a less obvious habit, but financial maturity and expense cutting doesn't mean you should overlook the essential spending on any pending repairs and upgrades. It's important to stay proactive and tackle a minor inconvenience before it turns into a huge, costly problem down the track. 

Show restraint

Take control of your spending and be disciplined with where you allocate your finances. We're not saying that you can't ever enjoy a luxury or splurge on a special occasion, but avoid turning it into a common occurance. Before you give in to that amazing bargain or sign up for another year's worth of Netflix, ask yourself if it's really worth it and if you actually need it.  

Implement the 24 hour rule for your purchasing decisions -take control of your purchasing decisions and eliminate impulse buys.  Don’t commit to purchasing big items until you’ve slept on the decision overnight.  If you really want the item badly you can purchase the next day.

When extra cash comes your way, whether it's a gift or your tax return, don't instantly blow it on non-discretionary areas. These bonus lump sums will prove far more useful if they're used to pay off debt, or placed in a savings account, an investment or your super fund.

Save

Don't spend more than you earn, and ensure you're dedicating a portion of your earnings towards your savings. The earlier you save, the better off you'll be by the time you reach retirement. Again, automated savings are a great way to build your wealth without having to even think about it. Otherwise, be strict on transferring a certain amount each month - no ifs or buts. 

Besides your savings account, you may consider setting up a seperate emergency fund to fall back on in times of financial difficulty. 

Invest

Investing is a fantastic way to grow your wealth over the long-term. You first need to establish an investment strategy, conduct plenty of research and evaluate areas you may interested in. Are you looking to invest in the stock market, or perhaps go down the pathway of property investment? Especially if you're a first-time investor, it would be wise to seek advice from a professional and stick with what you know. 

Deal with debt

The financially mature don't let debts pile up and put a weight on their shoulders. Be proactive with your debts and set up a repayment plan. High interest debts, such as credit cards and car loans, should be your upmost priority before you move on to other outstanding expenses like your mortgage.

While you're paying off your current debts, avoid adding to the load. Only take out additional debts if it's absolutely necessary, and avoid using multiple credit cards - one or two is ideal. 

Seek out good advice

A key aspect of financial maturity is building a trusted team of experts to support you on your journey. This should include a financial adviser and accountant, and for key moments you will also need an experienced mortgage broker and lawyer. 

These steps may seem simple in theory, but the transition to financial maturity can be difficult to execute. Don't go at it alone!

Talk to the team at Calder Wealth Management. Call us on (08) 8373 3333 to schedule your free initial appointment.

Written by Kerryn Shaw at Calder Wealth Management.

This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek advice from a financial adviser and seek tax advice from a registered tax agent. Information is current at the date of issue and may change.