Wealth creation for your future starts with making small changes in your spending habits now. Wealth Connextion walks you through how to start changing your spending habits.
Step 1: Track your spending and expenses
This will help you to get a snapshot of your money and where it’s going so you will have an idea of the bigger picture of where your money is going day to day.
Choosing how long to track:
- One week for daily spending.
Recording your spending every day for at least a week, so you can establish a pattern of all the money that is outgoing.
- Fortnightly or monthly for recurring expenses.
Looking at your finances over a fortnight or month will allow you to include things like direct debits and recurring bills that don’t happen every week. Tracking your money over a longer period will give you a more specific idea of your outgoings.
Record what you spend
- Utilise your transaction statements
Every transaction is recorded when using your card or phone app to make purchases. You will have access to these transitions through your online, or hard-copy banking statements.
- Phone Apps
An app is an easy way of tracking your spending each time you spend. You can also set yourself spending limits and reminders or see your expenses at a glance.
- Write it down
Record the item(s), cost and date of every purchase, for both cash and card purchases. Keeping receipts and popping them into a log or diary is another great way to track spending each day.
Do it daily!
Don’t worry about changing your spending habits straight away. The first step, is just recording your spending. To stay motivated, set a reminder on your phone or calendar, or get an accountability partner or friend to help you remember to jot it all down.
Step 2: Learning about your spending habits
At the end of your chosen tracking period, look over all of your recorded transactions to see where your money is going. It might be helpful to have tallied totals along the way and categorise your purchases.
People are often surprised by how much small daily purchases can add up to. You may also discover some hidden costs such as account-keeping fees, subscriptions you no longer use, or mistaken transactions.
Often, when people start tracking their spending, and by bringing awareness to where their money is going, they start to spend less.
If you want to be more cautious about your spending, take a moment before grabbing or tapping your card. Ask yourself questions such as do I need this right now? Can I find it cheaper elsewhere? It may even be helpful to walk away from the store or item first, to give you some space to feel less impulsive at the moment, and more in control of your spending choices.
Step 3 – Changing your spending habits
Now that you know exactly where your money goes, making small changes can make a big difference. Try not to overwhelm yourself by changing all of your spending habits at once. New habits take time to establish, so start with changing one spending habit.
Wants vs Needs
Looking at all of your transactions, separate them into two different categories.
Needs are essential items you need to live, such as groceries, electricity, rent or mortgage repayments.
Wants are the transactions that are left over, and are things that you could cut back on, or live without for a while so that you can save money. These are the transactions that you can look over, and ask yourself which spending habits you want to change.
Other Tips:
- Start a savings habit, or set a goal. Set up a savings account and contribute to it each pay cycle if possible. It doesn’t need to be a large amount, each little bit ads up, and seeing your savings grown will help keep you motivated.
- Set spending limits or reminders. By having tracked your spending habits, you will have a realistic idea of what your spending limit guidelines should be. Set calendar reminders for upcoming bills and regular expenses.
- Create a budget. Creating a budget is a great way to keep your spending habits on track and start your wealth creation for your future. Read more about budgeting here.
Wealth Connexions’ team of professional financial advisors can help you create better financial habits and provide practical solutions to help you with your future wealth creation. Contact us at 07 3891 5666 or email us at admin@wealthconnexion.com.au.
