If you want to take control of your money, you need a Money Plan. Your Money Plan sets how you want to use your money. You have three choices about how you use your money:

1.    You can spend it now
2.    You can save it for a short term or medium term goal such as a holiday or something for the house
3.    You can save it for the long term, such as for your retirement
It’s up to you how you use your money! If your goals are really important to you, you will find ways to either cut back on your living expenses or increase your income so that you can achieve them. The best way to do this by making a Money Plan.

Step One. Add your total net income (that is, after tax and any other deductions such as KiwiSaver) each pay day
Step Two. Work out how much money you need to set aside each pay day to achieve your goals. Start with trying to achieve a small, short term goal – for example you might want to go away for a weekend somewhere at a cost of $400 in six months time. You will need to save around $30 per pay to reach this goal.
Step Three. Break down the amount you have to live on into three categories:
(i) Known expenses - a known expense is one that you are committed to paying and for which you know exactly how much you have to pay and when you have to pay it. Examples are rent, mortgage payments, rates, insurance, loan and credit card repayments.
(ii) Other household expenses – these are things that you have to spend money on, but you have some control over how much you spend. Examples are food, power, phone, and children’s clothes.
(iii) Personal expenses – these are things that are not essential and over which you have complete control of how much you spend. Examples are buying takeaways, going out to dinner or the movies, buying magazines and alcohol.
Step Four. See if you can make your Money Plan add up. This means that your total income should be enough to cover what you need to save for your goals plus what you need to live on. An easy way of cutting back your expenses is to look at how much you are spending on discretionary items; that is, non-essentials and personal spending. Set yourself a limit for that and stick to it. If your known expenses are too high, it might be because you have a lot of short term debt such as credit card debt. It’s going to be much easier for you to reach your goals if you can work on getting these debts down. If your other household expenses are too high, set yourself a limit and keep to it – especially for food, which is usually one of the biggest costs.

The best way to stick to your Money Plan is to stay focussed on your goals. Don’t look upon your Money Plan as something that limits what you spend and forces you to go without. Look upon it as something that allows you to reach your goals and do the things in life that are important to you.

Article by Liz Koh

Liz Koh is a financial adviser. Her disclosure statement can be obtained free of charge by calling 0800 273 847. 

Ph 0800 273 847   
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www.moneymax.co.nz

Author of the book Your Money Personality; Unlock the Secret to a Rich and Happy Life, Awa Press, March 2008

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