The (not so) secret golden rule of financial planning

20 Mar 2013

By Jeremy Taylor

At risk of being shunned by my financial planning colleagues, I am about to reveal to you our magic trick…financial success will come from one fundamental rule – spend less than you earn.

Easy in its simplicity, but hard in practicality – how do we identify whether we are spending within our means? The most effective way is to create and keep a budget. Most people cringe at the thought of a budget, but with a little effort they can be set up and tracked very easily.

Below are four tips for creating a budget:

  1. Track your expenses – over a couple months keep a running sheet of all your expenses. My wife put me onto this; she simply records all our expenses in a notebook, classifying them according to the type of expense (such as groceries, eating out and so on).
  2. Collate the data – using a spreadsheet, collate your expenses to work out where you are spending your money…it might give you a shock, but it will allow you to work out where you are over-spending.
  3. Create your budget – there are numerous examples of budgeting software and apps available for you to use. 
  4. Stick to your budget – you have done the easy part, now comes the hard part – sticking to your budget. Review your budget regularly and fine-tune as required.

Surplus cashflow gives you flexibility and choice in how you deploy your savings to the betterment of your financial future. It will allow you to pay off your mortgage faster; start contributing more to superannuation; save for school fees or just start an investment portfolio that, with regular contributions, time and the power of compound returns, should allow you to create more wealth.

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