Money Management – 7 steps to success (Ep.30)

Money – it can be your best friend or your worst nightmare.

Being able to manage your money is not only vital to financial success, it is also critical to your mental well-being. Most research shows that concerns about money are in the top 1 or 2 stressors of our lives.

It only takes a few big bills to make you feel like your credit card or depleting savings is a runaway horse, threatening to buck you further away from your goals. But we aim to get you back in the driver’s seat and on track to achieving your ideal lifestyle.

In episode 30, we discuss “Money Management – 7 steps to success ”.

Listen as David Johnston, Cate Bakos and Peter Koulizos take you through the 7 steps to implementing an effective money management system, the critical mistakes to avoid and how you can spend more money on what matters most to you.

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Let’s talk about money – it can be your best friend or your worst nightmare. Being able to manage your money is not only vital to financial success, it is also critical to your mental well-being. Most research shows that concerns about money are in the top 1 or 2 stressors of our lives.
Your money management system should be structural – that means something that you set up and then don’t have to think about out while you grow your wealth and get on track to achieving your ideal lifestyle.
Managing money effectively is not just for the ‘wealthy’ – it is for everyone.
Budget – it’s painful, but it’s a must. Money can control you, rather than you controlling the money. A simple benchmark is that you spend less than what you earn.
Throw ‘one size fits all’ out the window – there is no right or wrong way. People will tell you to set up your money management this way or that way. But personalised advice is about education and guidance, so that you can set up the system that suits you.
Step 1: Get your expenses into a spread sheet. Go back over the last 12 months of bank statements, this is so you can catch those random annual payments and other ad hoc expenses. If you take out cash for anything – what do you think it was spent towards? Word of warning, this may give you a shock.
Step 2: Categorise your payments. The categories are up to you – they can be loan repayments, utilities, child care, clothing, personal maintenance, groceries, insurances, recreation, drinks, dining out. You name it!
Step 3: Define your bucket accounts and move categories into these buckets. We recommend 3 accounts to separate your spending: Grow, Life and Fun. Eg: purchases in the grocery category should be made from your ‘life’ account, while eating at restaurants should be made from your ‘fun’ account. Which category is allocated to which bucket is completely up to you – but make sure your partner is on the same page.
Step 4: Document where you can cut back spending. This is entirely up to you and within your control. The typical ones we see clients cut back on is:
- Discretionary spending – like eating out, buying new clothes, fun and recreational events like going to the movies.
- Automatic debits and subscriptions – do you really need a Foxtel subscription as well as Stan and Netflix? The answer for most people is ‘no’ – while it is a ‘nice to have’, it is not a ‘must have’ and a quick win.

Actually be prepared to give up the stuff you are talking about

Get creative – it’s not all about cutting things out or cutting back, you can also think about how you can do something differently to save money. Eg: do you buy expensive gifts for your kids because you leave it to the last minute? Is there a cheaper gym that you can sign up to? Any discounts?
YOLO – you only live once. Life is for living and while your child’s birthday may hit you in the hip pocket, nothing is worth more than the smile on their face. If there is something important to you that makes you happy, then do it. Money management is not about cutting all fun out of your life, it is about what you would like to be spending more on, which adds another level of excitement.
Insurances and utilities – time for a deep dive. How often do you look at your insurances and negotiate a better deal for yourself? The answer for most of us is ‘not often enough’. Significant savings are to be had if you dedicate some time to reviewing your options.
Step 5: Set your monthly goals for each of the buckets. Right, so now you have an idea of what you actually spend and how much you want to spend – put a figure on it. Then set up a weekly float from your Grow Account to your Life and Fun account. Watch your balance dwindle every week. Some weeks will have greater expenditure, you may have to do an extra transfer over. But if you get it right, there are weeks that you have saved as well. A weekly float will give you the feedback faster.
Step 6: Decide how you will transact on the accounts. Will you only have direct debits coming from your grow account, use cash for fun, debit card or credit cards for your life account? Decide how you will pay for things from these accounts – this may mean putting stickers on your cards if you have multiple cards. Feel the pain and pay in cash.
Step 7: Set up your Mortgage Strategy and banking arrangements. Many lenders allow you to have multiple offset account which you can link to your non-deductible debt. Meaning that you can have each bucket offsetting your loan and every dollar is reducing interest. Ensure that your strategic mortgage broker has set up your mortgage strategy to complement and work with your preferred money management system.
How often should you review your system? There is no set answer to this, if your money management system is working well and you are spending and saving according to your goals, then perhaps an annual review is all you need. Certainly you should review your money management system prior to any major life events. Eg: taking extended leave, travel, new job opportunities, having children.
Falling down the credit card hole – unsecured debt is the most expensive debt. It is easy to fall into the trap of whacking it on the card and sticking your head in the sand. You should not be using credit cards until you’ve got the system working seamlessly. Don’t tempt yourself if you are uncapable.
Review your credit cards – so you’re getting some points and you think that is a win. It may be – have you checked the annual fee that you pay and added up any interest incurred by mismanaged payments? Is it actually worth it?
Get on the same page – is your other half on board? One partner may take the reigns and the other partner hasn’t been involved as much. Most often, this is for a reason. They may not want to know or don’t want to be accountable. Find a way to make sure you’re on the journey together.
Put the effort in now, the journey becomes more difficult as you get more commitments in life – kids, properties, running a business.

Cate Bakos- The Property Buyer’s Golden nugget: general categories

Grow – regular necessities and set payments

Life – variable necessities – petrol, groceries, car repairs, school books

Fun – the good stuff – drinks, parties, sport,

Peter Kouilzos – The Property Professor’s Golden nugget: step 1, save some money, 10% or 20% spend less than you earn. If you are paid on thursday, the next day money goes out into another account that you do not touch, unless on a rainy day. Save!