Have a Plan


In the last edition we discussed that the number one secret to financial success is to spend less than what you earn.

It doesn’t matter how much you earn, what level of education you have or what or who you know, it matters what you do.

In this edition of Money Matters, we discuss step 2 – and that is to have a plan.

In my now 35 years of helping Clients make smart financial decisions, I have found that there are 2 types of savers.

Type A receives their salary and they pay their mortgage or rent, do the grocery shopping, pay their bills, and spend whatever else they need or want and IF there is any money left over they MAY save.

Type B receives their salary and they allocate certain amounts they have pre-calculated to their various savings and investment goals, and THEN they pay their mortgage or rent, do the grocery shopping, pay their bills, and spend whatever else they need or want.

Type B has a plan where they have calculated how much they need to put away each pay day to achieve their future goals – whether that be an overseas holiday, deposit on a home in a few years’ time, their Children’s or Grandchildren’s education costs, their retirement, or simply to increase their investment assets.

Type A spends first and may or may not save anything. They have no plan. Type A is not likely to achieve their future financial goals.

Type B will achieve their future goals. Type B saves first and spends second. They have a plan, and they work that plan each pay period.

Does that mean they are also one of those budgeters you see lined up in front of you in the checkout who knows exactly how much they have allowed to spend on groceries or going out? Sometimes, but usually not – budgeting is not easy for most people – but here is the good news – you don’t need to be a great budgeter if you have spent the time calculating how much you need to put aside each fortnight to achieve your future goals.

Let’s take the example of someone wanting to save say $60,000 towards a deposit on a house in 5 years’ time. If they are paid fortnightly, then there are 130 paydays in 5 years. Divide the goal ($60,000) by the number of pays in 5 years (130) and the answer is $462. If they saved $462 each payday, then in 5 years’ time they will have saved $60,000.

You can do this simple calculation with any future goal you are trying to achieve. By doing so it will also force you to prioritize which goal is more important to you, and by when. Perhaps you simply won’t be able to do everything you wanted at the same time. Maybe it will take you longer to save for a deposit on a house. Maybe you need to rethink how much you will spend on an overseas trip. Is there a way you can increase your income, or reduce your expenditure to help?

What you are doing is breaking down your future goals into bite sized and achievable steps. And by following those steps you can’t help but succeed.

Does that mean you will be forced to choose between saving for the future and having a life now? No it doesn’t. Its about priorities. Remember step 1 is to spend less than what you earn. To do this successfully you will learn to work out what you need versus what you want.

Can you put aside what you want today, to help you get what you really want tomorrow?

Financial Success Secret #2 is to have a plan – learn to save first, and spend second.