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Saturday, May 26, 2012

Bills Bills Bills

A few months ago a woman contacted me for some help with her finances.  Up until that point, her husband had been paying all of bills and now he had handed responsibility to her.  The big question was how to make sure there was enough money available for when the bills came in.  She noticed (and I have the same situation myself) that many of her bills all came in the same month.  For me that month is December which is really handy (not) around Christmas time.  I also get a second big month in May/June.

The bills I am referring to here are the big ones that we tend to forget about until they arrive.  Things like car registration, services, rates, roadside assistance, insurance, electricity and telephone bills to name a few.  When you get a few of these within a matter of weeks it can really stretch the budget.  So how do we make sure there is enough for all of these bills, and also enough for our usual activities as well.

The short answer is: Save up.  But that's not the slightest bit helpful if you are already living week to week.  So here's a step by step solution that may be of assistance.

The first thing you need to do is find out what all of your bills are.  Have a rat through all of your old bills and bank statements and find as many bills or payments as you can from the last twelve months.  Write down on a piece of paper what these are all for.  Then in a table, also write down the approximate month that these are due, and how much you usually need to pay.  Actually knowing when to expect these bills is a huge step towards being able to pay them on time.

The next step depends on your current financial situation.  If you have a bit saved up and the next bills aren't going to cause you too much stress then the rest is just a matter of mathematics.  Add up the total of all of these bills, divide the answer by 52 and that's how much you need to allocate for your bills each week.  Put this amount into a separate bank account on the day you get paid before other expenses come out.  This will ensure that your provisions are made and you don't have to stress about having enough to put aside at the end of your pay cycle.  Now, when the bills come in, you should have enough to be able to take it directly out of this account to pay for them.  Of course, for the short term, you may have to do a bit of a top up if your big month is just around the corner.  But after that, this system should work, provided you haven't forgotten any bills or grossly underestimated the fees.

If that last paragraph was less than useful because you already have bills coming in that you can't pay, then here's a method that may help.  Many companies have pay-by-the-month plans.  Rather than put off a large bill and be uninsured or something, give these companies a call and see if they'll let you pay monthly instead of annually.  Otherwise, you could prioritise your bills and pay the most important ones first.  For the others, give the companies a call and see whether or not they will allow you to put off the payment for a month or two.  Most people are understanding, but it is better to have communication than to wait for more notices.  Organise some direct payments to get these bills out of the way before your other expenses.  If the payment for the bills does not fit in with your income cycle then put money in a separate bank account on your payday to provide for these, and have your direct debits come out of this account.

Paying bills should not have to be stressful.  All it takes is a little organisation.  If you do this properly the first time, then it shouldn't be too much trouble to keep your bills in check in future, even if you change companies or have increases.  Just don't be afraid to pick up the phone.

Saturday, May 19, 2012

Separate Bank Accounts

One of the things that I always recommend to people is to have more than one bank account.  This is very different to having more than one credit card so don't get the two confused.

When I first started reading about personal finance management, I learnt the 10% rule. If you save 10% of your income, every time you get paid, you are on your road to wealth.  I  had every intention of doing this and more but for some reason, the money just would not stay in my account.  At the end of each pay cycle, the 10% wasn't there.  Or else, I would see my bank account increase over the course of a couple of months only to dive back down again when a bunch of bills all came in at once.

The solution was pretty simple but it took me many years to figure it out and to implement it.  It's all very well saying put this money aside, or save that, and when you are doing those things it is obvious how they are to be done.  It is not so obvious if you have never entertained the concept before.

So here's the step by step process:  Go to the bank and get them to open up a few more bank accounts for you.  I recommend having at least four.  If your credit card has a zero balance, then this can be one of the four.  Have your ATM card linked to only one of these, and the others only accessible via internet or phone banking.  They should not charge extra account keeping fees for the extra accounts and if they do, find a bank that doesn't.

Here's what they are for.  One will be for your investment funds or retirement.  One is for the bills that only come once in a while.  One is an emergency fund for unexpected bills like car accidents or theft etc.  This one can be your credit card if you don't regularly max it out.  The other account is your regular transaction account that your income goes into and regular bills such as groceries get paid from.

Now, on the day you get paid, put 10% of your income into the investment fund.  If this sounds unachievable, start with a smaller amount.  It is the habit that's important not the amount, so even if its just $5 per fortnight, get this one started.  You will find it easier to add to later.  Work out what the total of your irregular bills are for the year, divide by 52 and that's what you put in the second account for each week.  When these bills come in, do a transfer from this account to get them paid.  Put aside a little each pay for emergencies, so that if something comes up, you don't feel compelled to dip into your investment fund or money allocated for other purposes.  You should feel comfortable spending the rest of your pay in the regular way, knowing that you have saved money and that everything else is covered.  Remember to do your direct transfers on the day your pay goes in, otherwise you may find that you have run out of money before you get around to it.

Saturday, May 12, 2012

The Millionaire Mindset

I've been reading a lot lately about the 'universal law of attraction'.  There are plenty of books out there which advocate that if you think positive thoughts, positive things will happen for you.  And money is no different apparently.  The theory goes that if you put yourself in a positive vibration, or imagine yourself in abundance, that money will be attracted to you.

If you ask people about whether they have enough money, most will admit to wanting more.  Many will by lottery tickets in the hope of winning "The Big One" so that they don't have to worry about money anymore.  Worrying about money is apparently a negative vibration which keeps money away.
I have been practicing positive thoughts about money for a couple of years now and I admit that (in conjunction with good money habits), I no longer worry about money.  I always have enough for what I want or need at the time.  If I need more, there is always an opportunity for me to get some more from somewhere.

It wasn't until yesterday that I actually saw this theory work in reverse.  A friend of mine has a business in town and I happened to run into him.  After a short conversation, I asked him to do a quick job for me which was related to his business.  He wasn't busy and fixed me up in about fifteen minutes.  I tried to pay him the going rate, but he wanted to waive the fee because we are friends.  This must happen a lot to my friend.  We live in a small town where everyone knows each other and you will always stop for a chat in the street with someone.  If you gave a free service to every one of these people, you could not possibly make a living.  And that's exactly the type of friends that we are.  We don't interact socially except at community functions.  We have never phoned each other, and our interactions are really limited to chance encounters when we both happen to be in town, which is about once every 4 or 5 months.  I insisted that my friend take payment, or I would not feel comfortable asking for his services again.  He took the money.  Then he did the most extraordinary thing.  He threw it away. The money stayed in his hand for about a minute and a half before it got handed over to the newsagent.  If my friend had bought stationery or a magazine or something he wanted, then fine but the entire amount was spent on a lottery ticket, which he promised to split with me, should it be a winner.

This really cemented the theory in place for me.  Good money habits are all well and good but if you don't like money or you think negatively about it, you will find it impossible to hang on to.  It appeared to me that my friend felt so guilty about having my money, even though it was earned, that he had to get rid of it as quickly as possible.

Does this happen to you?  Do you think money is 'dirty' or 'evil'? If so, you may never get ahead financially.  Have a good think about what your money beliefs are.  Do you feel like you have to get rid of it, or are you happy to accept payment for reasonable work? If you don't feel like you deserve to have money perhaps you need to work on changing your beliefs.  If people give you money willingly, then that is a good indication that you are worth it.  Take the money and do something worthwhile with it.  I approach taking money the same way that I take compliments.  I say "thank you".

Monday, May 7, 2012

Wealth Creation

We live in one of the best countries in the world. We have one of the lowest unemployment rates and on average people in Australia earn high wages for their labour.  Yet most people would not consider themselves wealthy.  So if high income levels do not make us rich, then what does?

It’s simple mathematics really.
…and a lot to do with habit. AND… you can do this even if you are on welfare. Here’s the formula:  If you spend less than you earn, you can get rich.  I know it sounds too easy but you have to make the conscious decision to do this, otherwise money just seems to go doesn’t it? Here are two more formulas for you.  If you spend exactly what you earn, you will not be poor or rich.  If you spend more than you earn, you will always be in debt.

How to spend less than you earn.
There are many different tricks that you can use to cut down on expenses or to make a successful budget but if you are looking for simplicity try this.  Open up two separate bank accounts.  In the first one, put away some money each pay that is not to be spent.  This is yours to keep.  In the other one, put away money for unexpected emergencies.  This is because life happens and we don’t want any excuses to dip into the money we have decided is ours to keep.

What do we do with our kept money?
That’s a very good question for your Financial Adviser (not me).  Or else, seek out some books on investing from the library.

Wednesday, May 2, 2012

Teachers are not allowed to teach.

I ran into a friend of mine the other day who is a kindergarten teacher.  She was telling me about the work that she was doing with her kids.  Last year, parents were disappointed that their children did not seem to be learning much.  Is kindergarten supposed to be educational or is it just a glorified day-care centre I wonder.  This year, she is working well with her children but finds it difficult as she is forbidden to do any structural learning activities.  Kindergarten is supposed to be student centred, play based learning.  The kids decide what they will do during the day.  How does that prepare them for school I wonder?  My friend is not only responsible for the kids during the day, but she must write constant reports about their progress throughout the year.  What is the point of this when she is not allowed to teach them anything?  She was even criticised for having the letters of the alphabet displayed on the walls.  Much of her time is also taken up with health and safety checks and other paperwork.  She barely gets time to "play" with the kids at all.  What a ridiculous system.

I had similar problems when I was teaching three years ago.  We were supposed to keep records of the students' progress (on top of their regular assessment), by assessing them constantly throughout each lesson.  These detailed reports would take hours to write at the end of each day.  On top of that we had to prepare our lessons, find resources, set these up in the classroom and justify our decisions as to what type of lesson was being conducted and what learning styles this would address.  If all of this was done "correctly" we would be up all hours of the night and at school very early to get it all done.  No wonder teachers are leaving the profession burned out within 3-5 years.

The regulations are inappropriate for the profession.  To do the right thing by the students, teachers have to decide which rules to follow and which to ignore whist watching their backs the whole time.  They are not focussed on teaching anymore as much as covering their butts and working the system.  And the kids are suffering.  Many students who fall behind do not ever get a chance to catch up because the teachers are not allowed to teach anything other than the curriculum for that year.  There is no time for them to do anything else.  Students who are gifted also do not get their needs met because they have to wait for the rest of the class.  Yet, the teachers are expected to justify how they are addressing the needs of individuals.

The government has us all fooled.  They have taken on the responsibility of educating our children but are not doing it at all well.  Teachers are not to blame, they are doing the best they can.  It is the system which is flawed.  We must take back the responsibility for the education of our children and not leave it to the so-called professionals.  Think of the school as a resource and nothing more.  You need to decide what is best for your child, not the government.  To them your child is just a number with an A-E score attached.  Take an interest, take responsibility, and question everything.  Twelve years is a lot of life to be wasted on a bad education.