Managing money made easy
Sadly managing our personal finances is not one of the skills they teach us at school. It is not easy, and for many, the thought of preparing and managing a budget is just-well-boring.
This is what usually happens… We are paid for work that we do. Payment is usually on a weekly, fortnightly, or monthly basis (or even at irregular intervals if we are self-employed; or rely on investment income).
And somehow we have to make our pay last for 7,14 – or even – 30 days. It all comes down to pacing ourselves. However – you know how it is!
A few days before the next pay is due to be deposited into our bank accounts; we usually run out of money.
There is simply not enough from the last pay left to get us though. We stop spending, we borrow money from family or friends, and we give a well-worn credit card a workout! (With the best intention of paying it back the next day), or we may even think of visiting our neighbourhood ‘pay day lender’.
But do not despair – what is outlined is a common problem experienced by millions of Australians on a daily basis. But there is hope.
Unfortunately; bills and living expenses are not divided into nice and even 7,14, or 30-day installments. They are irregular – with bills often appearing at the most inconvenient time.
However – somehow we all manage to cope. We survive from one pay day to the next, although it might be accompanied by periods of stress, anguish and even embarrassment – when we run short of money before the next pay is received.
Let us add an additional layer of complexity. What happens if our pay interval changes from weekly to fortnightly, or fortnightly to monthly pay?
This may be due to your employer changing their payroll system, yourself changing jobs, transitioning from employment to self-employment, or due to retiring or taking a career break.
To save the day, and our financial sanity, here is a simple strategy that might work better for you. The following steps outline how it works:
- Visit your bank, or go online and open a new ‘low-fee’ account. Ideally, this account shouldn’t be ‘linked’ to your other accounts and, most certainly, should not have ATM access. We will call this your ‘pay’ account.
- Arrange for those who pay you (your employer, super fund, Centrelink, or your clients) to make their payments into this ‘pay’ account.
- Divide these payments into amounts that reflect the intervals you would like to be paid (such as weekly or fortnightly).
- Set up an automatic transfer arrangements so that the amount you have chosen is transferred from your ‘pay’ account to your ‘everyday’ bank account at the intervals you prefer.
- Now – get on with your life! You have just set up a simple arrangement that will allow you to be paid at the intervals you prefer.
Source: InterPrac Financial Planning. Written by Mark Teale.