a christian perspective on the world today

Be the master of your money

Money is essential in our Western world. It allows us to purchase the necessities of life—food and shelter, for instance. It pays the bills for heating and cooling. There may even be enough for some luxuries.

So, like the seven dwarfs, it’s heigh-ho, heigh-ho and off to work we go. Most of us need to work for the money to purchase these necessities of life. But how can we make money work for us? How do we become its master?

Know what money can’t do

The first thing we need to do is recognise that money is limited in what it can do. Money is an aid to life. It isn’t its centre point.

For instance, the musical philosophers Lennon and McCartney (John and Paul) got it right when they sang, “I don’t care too much for money. For money can’t buy me love.”

Neither can money buy happiness. Carolynne Melnyk from website Lifehack admits money can buy fleeting happiness, but it rarely lasts. “Happiness is a thought form . . . a quality to be discovered within yourself. Only you can give yourself lasting happiness.”

And money certainly can’t buy wisdom. That usually comes from life experience.

You can easily add to this list, but the point is that money can’t provide essential life-enhancing qualities. And that means that, while it’s important, it should not become the centre of our universe.

Know where your money is going

The first step in becoming the master of your money is to find out what you’re currently spending your money on. Not by guessing, but by checking your monthly payments—all of them.

That means searching out your bank statements, bills, credit card statements, receipts and shopping dockets. You do need to know where your money is going. In some areas your best guess will probably have to do for now.

Some reading this will shudder at the thought and think it too hard. But it’s worth doing to gain an accurate picture of your spending habits. It will help you become the master of your money.

The dreaded “B” word

Budgeting. It’s the dreaded “B” word because it seems so limiting when you have to account for every dollar, every cent spent. Yet, it’s so freeing once you have your budget set up. You then know that the money is there for the weekly grocery shop, the fortnightly rent (or monthly mortgage) and the monthly phone bill.

Once you’ve worked out where your money is going, now you have to work out your total income. That includes wages from full-time or part-time work, casual work, pension, child support payments, any money from investments and so on.

Of course, if you’re saving for a holiday, a new car, house deposit or something else, this needs to be part of your budget planning. How much will you have to set aside each pay to make it happen?

Now you can begin to create your budget. Hopefully you’ll have more income than expenses. If not, you will have to think hard about what you will do to cut costs—remember this is not about limiting you, but freeing you to be the master of your money.

The MoneySmart website (www.moneysmart.gov.au) has some good tools to help you calculate where your money is going annually, quarterly, monthly, fortnightly and weekly. You’ll also find a budgeting tool, the TrackMySpend app. There are other planners online that you may want to check out.

You don’t have to be hi-tech about this, though. Pen and paper will work. It’s less about the technology you use and more about recording your financial activities and goals.

The idea then is to keep your records up-to-date with income and spending. Some want to do this as it happens; others put receipts and other records aside to do fortnightly.

If you’re a couple, all of this needs serious discussion and agreement otherwise it will be difficult to make it work. Hint: If you’re a couple, one of you will probably be better at budgeting than the other. As a budget enthusiast, I’m glad my wife enjoys keeping ours up-to-date. She does this on a weekly basis.

Realities of budgeting

Keep your budgeting real. Amy Fontinelle from financial website, Investopedia, says, “Budgeting is like dieting: If you try to deprive yourself too much, you’ll just binge later and throw all your hard work out the window. A spending binge can set you back far more than treating yourself occasionally.”

What is safer is to allow the occasional small luxury that’s within budget—or budget for it—so there’s no sense of serious deprivation.

It could take time to build up to the allocated amounts in each area of your budget. Don’t be discouraged by this—just remember you have embarked on an important journey.

You’ll find you have overestimated or underestimated in some areas—be prepared to make adjustments. Expenses will change, as will income. And your needs and priorities will change, meaning you will want to add items to your budget and take others out.

Then there are the one-off and unexpected costs that may come, like having to replace your hot-water system. That doesn’t have to break your budget, but you may have to borrow from other parts of the budget to cover the cost. It’s good to have an “emergency” category in your budget that builds up over time to cover these kinds of unexpected costs.

Support a cause bigger than yourself

Using your money to support a cause bigger than yourself is a selfish thing to do because studies show giving leads to a happier, longer and better socially connected life for you. And it’s good for your health.

However, the positive impact giving has on others is huge as well and it helps you to live a more generous life. And it’s part of you becoming the master of your money.

A five-step financial plan with Bruce Manners

I wanted to understand the financial priorities a family should set for themselves so I talked to Mel Tull, a financial advisor. Tull also fits the “young family” category. I contacted her a few days before the birth of her second child.

She first noted the many competing goals a family can have—depending on the family and the priorities they have set. This makes it extremely important that there’s a plan in place.

Here are the five things she discusses with parents:

  1. As a parent, your first financial priority must be your family and your ongoing ability to provide for it—it isn’t the car or the house. This means making sure that if something happens to a family member, especially one of the parents, you can financially afford to continue to meet expenses as well as medical costs. This is usually done through insurance.
  2. It’s important to understand where your money is being spent, to have a budget and to have in savings a cash buffer to cover at least a few weeks’ or months’ expenses. This means understanding and controlling spending to stop personal debt getting out of control.
  3. You should make the most of your money and savings by regularly reviewing the arrangements you have. Questions to ask: Should our savings be in an account or in a mortgage redraw? Should some of our mortgage be at a fixed rate? Should we consolidate debts? What debt repayments do we prioritise?
  4. At this time of life (parents with young children), most use a mortgage that can be redrawn in an emergency. However, you also need to think about retirement planning even if not much cash is put toward it at this stage. This is where you do long-term planning and consideration of savings (in superannuation, perhaps) or debt repayment.
  5. Only when these basics are under control should you consider financial plans and strategies that involve such things as investing and negative gearing. Without the basics these strategies can fall to pieces and leave you with debt you can’t handle.
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