LOUISE FAIRSAVE: 3 key financial moves
Last week’s article offered you the opportunity to consider gaining clarity on your values.
That exercise provided the basis for setting priorities for your financial goals. Allotting time to think about and plan your financial future consistent with your values and goals then becomes more important. There is a wealth of personal money management information and explanations available online and in various highly recommended books to guide you.
Today we consider three key financial moves that can accelerate your personal wealth building and financial freedom.
1. Avoid interest charges like the plague.
When you save money, you have the opportunity to invest it to earn interest, particularly compound interest. You have the opportunity to put your money to work for you.
When you borrow money, you typically pay interest, often compound interest. You are sending your money to work for the lender and you expend more funds in paying that interest. If you are a prolific long-term borrower, especially through the use of multiple credit cards, you are surely building a financial grave of debt.
Here, therefore, are five powerful examples for earning/avoiding interest:
• Paying bills on time that incur interest charges otherwise;
• using credit cards, and in-store and similar credit, for convenience rather than for credit – this means paying off the full balance due before the due date;
• Saving to purchase certain items cash or over a few months rather than a hire purchase contract over years;
• Arranging to repay a mortgage loan in much less time that the mortgage agreement; and
• Saving a minimum of one month’s gross income in a credit union or similar account where you can earn interest compounded at least annually – this one move will exponentially expand your financial self-esteem if you have never saved such an amount before.
2. Avoid taxes.
Where there are opportunities to legitimately avoid taxes or related penalties, grab them. This means planning your taxes, paying your taxes on time and putting yourself in a position to claim any tax savings that also advance your financial interest. Currently, tax saving incentives have been reduced significantly, the major one of which is the elimination of saving towards one’s retirement tax-free.
However, to the extent to which you can invest in ways that are successful yet also save on taxes provides a powerful way of increasing the net funds available to you each year. This can translate into a significant relative increase in net worth in the long term.
3. Monitor your spending.
The most powerful step you can take is to monitor how you spend every single cent you earn for a year or two and examine your disposal of your income in retrospect. Very, very seldom is money spent how we see it compared to what actually happens. In fact, we spend lots of money on non-essentials, nonsense even. This will be the most revealing exercise that can give you the insight and power to do one of the most difficult things in life – change our behaviour.
This quote taken from an online article in Money Sense by Julie Cazzin says it all: “The part most people dread is taking a really close look at their expenses. But don’t put it off. Successfully managing cash flow is your key to financial control. It will give you an awareness that has more long-term value than anything you can invest in, buy or sell.”
Employing these three key money moves in your life relentlessly will, at the least, bolster your financial self-esteem, confidence and independence in handling money matters. They will bring your personal money management more in line with your goals and life aspirations. • Louise Fairsave is a personal financial management adviser, providing practical advice on money and estate matters. Her advice is general in nature; readers should seek advice about their specific circumstances.
This column is sponsored by the Barbados Workers’ Union Co-op Credit Union Ltd.