The benefits of cleansing your body by flushing out toxins are well known. The same principles can apply to your finances. It’s about getting rid of everything that weakens your financial position and therefore your ability to enjoy life to the full. Here’s how to de-tox in five easy steps:
- Face the reality of your position. Make a list of all your assets (house, car, KiwiSaver and other investments) and all your debts. The difference between your total assets and your total debts is your net worth. If you are managing your money well this figure should be higher than it is was at this time last year.
- Find out where your money goes. Go through the last three months of bank and credit card statements. Put the transactions into three categories: financial commitments (such as rent, mortgage, insurance), discretionary spending (eating out, entertainment, gifts and other non-essential items) and essential spending (food, transport etc). Look in particular at how much you are spending on non-essential items.
- Start saving. Decide how much you want to save each payday and set up an automatic transfer into a savings account for this amount on the day you get paid. Allocate your remaining income into each of the three categories above and set up a bank account for each one.
- Make good choices with your savings. Use your savings to progressively do the following:
- pay off high interest short term debt
- set up an emergency fund
- save for short term goals such as holidays and home renovations.
- Get your financial affairs in order. Make sure you are in the right KiwiSaver fund, that you have adequate life and income protection insurance, your will is up to date and all your important documents are stored tidily in a safe place.