Top 5 principles for mastering your money

Learn how to achieve your financial goals sooner.

Believe it or not mastering your money is not all about how much you earn. Sure, your income is important, but the most important thing is having clarity over the money you do have. That means using it correctly to achieve the things that are most important to you.

Whether you're saving for an overseas holiday, preparing to have more time off when your baby arrives, or finally buying that investment property you've always wanted, there are a few basic steps worth getting right early.

How do we know these strategies work as well as which money management pitfalls you ought to avoid? Our experience in dealing with thousands of clients during the past eight years has shown us that all great money masters understand and apply these five principles.
 
1. Know Your Numbers       
It's easy to feel overwhelmed when it comes to financial planning. But really there are only three numbers you need to know to help master your money.

How much is coming in?
This means your income: the amount you earn, derive or receive for your own use or benefit. You should also consider any profits you make whether of a capital nature or not, and any periodic payments or benefits you receive.

How much is going out?
When considering your expenses think about how much you spend on housing, food, clothing, health, transport, leisure, communication, water and energy. If you're not 100 per cent sure what your total outgoings are, don't worry, you're not alone. Often all it takes is a conversation with a lending consultant to step you through your unique outgoing finances.

What's left over?
Your profit or loss is everything that's left over once you subtract your outgoings from your incomings. When many clients first come to FinancePath, we often see people who are not so great at spending their profit on things they truly get value out of. In fact, we've all been there at some point! With the right financial advice, you can have peace of mind knowing your money is working well for you.
 
2. Compartmentalisation
Put simply, smart money managers split their income. First they pay their debts and other obligations, and then they put funds for living and discretionary items into a separate account. By doing this you can easily see how much money you have available for discretionary spending at any time. It's about keeping track of your cash flow so that you don't over spend. Having all of your money in one account doesn't work. Why? Because it's too easy to loose sight of exactly what's coming in, what's going out and what's left over each month.

3. The Thing About Debt Consolidation
When it comes to debt consolidation the term of your loan is more important than your interest rate. Sure, taking up a longer term loan might give you a lower rate, but remember it will only cost you more in interest in the long run especially if you don't keep up the same level of repayments over the course of the loan. Instead, a mortgage manager can help find you a loan product that still has a competitive rate, but also has a shorter term. This way you're not left paying thousands of dollars in interest unnecessarily. 
 
4. Debit Before Credit
These days it's so easy to rack up debt. Especially with touch and go credit card technology, which we covered in last month's article 3 big mistakes to avoid when using a credit card. One of the most important principals of mastering your money is using the cash you've earned your income before using someone else's money, i.e. the bank's. To make it really easy, you can now use Visa debit or MasterCard debit cards. These give the convenience of a credit card, but allow you to access your own funds instead. The result? You don't risk accumulating debt or having to pay high interest rates.  

5. Know Your Relationship with Money
Some people feel good when they are saving, some feel better if they are spending, some people have beliefs about money that are negative and consciously or subconsciously impact the decisions they make. The best money managers understand their relationship with money. This gives them an awareness of why they are about to make a decision. And, makes them stop and analyse whether it's a smart financial move or not.