Do you have a lot of different debts that mean you’re not sure how much you actually owe? Does it seem like your cash vanishes as soon as you withdraw it? Are there automatic payments coming out of your accounts for things you don’t use? Are you struggling to keep up with payments or forget when they’re due?
If that sounds like you, it might be time to Marie Kondo your money; strip back to the essentials and make a simple plan to keep on track.
When your finances get complicated, it’s easy to lose sight of the big picture. For example, if you have three credit cards instead of one, it’s hard to keep track of how much you owe in total. With three monthly payments to make, it’s easy to miss one and rack up penalties, and that’s before we talk about how much interest you’re paying.
Step 1: Review your direct debits and subscriptions
Using internet banking, it’s easy to get a list of all the direct debits you have going out of your bank accounts; and don’t forget about any regular payments coming off your credit card.
Are your regular payments for sensible things like phone and broadband? Or is there a sneaky $100 a month for a gym membership you never use? How many TV or music streaming services are you paying for? Or are you still paying a monthly online magazine subscription you meant to cancel in 2017? Some items may seem small, but take the time to total how much they cost you over a year.
The good news is it’s usually easy to cancel a lot of those regular payments, so you can enjoy some quick financial wins. Just make sure you check first to see if cancelling things like a fixed term gym membership will incur penalties. It might still be worth it if you never use the gym, but make sure you’re aware of the fine print first.
Step 2: Get a handle on your debts
Step 1 was easy. Now it’s time for something harder. Get out all your credit card statements and work out the total amount you owe.
Find out the interest rate for each card. Chances are it could be up around 20% and if you have a store card it could be higher.
Now it’s time for some of that brutal honesty. Can you realistically expect to ever pay back the debt in full with high interest rates?
If it seems unlikely, you have two main options: transfer your balance(s) to another credit card with 0% interest, or consolidate your debts in a personal loan.
Before you commit to either, you need to make another commitment. And that is to close down your existing credit cards once the balances are either consolidated into a loan, or transferred to a 0% card.
Balance transfers only tidy your finances, if you can commit to not spending either on the old cards or a new card. The idea is to consolidate your debts into one simple payment, or use the 0% interest period to pay back your existing debt. Don’t leave yourself open to temptation by hanging on to those old cards.
Step 3: Review your day-to-day spending
There’s a popular saying: “What you do every day matters more than what you do once in a while.” That’s certainly true when it comes to money.
Those little everyday spends can add up over time. Whether it’s cigarettes, your morning coffee or lunches at work, do you know how much your daily habit is costing you?
A useful exercise is to spend a week paying close attention to what you spend and where. Write it down or make a note on your phone. It can be a real eye opener.
At the end of the week, analyse your spending. If you’re buying yourself treats, do they "spark joy", as Marie Kondo would say? If the joy has gone out of the habit, it’s time to break it.
Where could you cut back, or spend differently? Bringing your own coffee in a reusable cup not only avoids the $5 price tag on a takeaway coffee, but it’s good for the environment as well. A $5 coffee five times a week over a year adds up to $1300.
One last cautionary note: don’t get so carried away with tidying up your finances that you ignore payments that have to be made. Maybe paying your car off, or paying the credit card bill don’t “spark joy”, but they still have to be paid. The joy comes from knowing you have your finances well managed.
Here’s hoping these steps will see you on the road to cutting out the financial clutter in your life. And remember, with all things money-related, keep it simple!