The start of the new year is the perfect time to take an honest look at your financial strategy for the year.
Whether your aim is to save money, make money or just to be a little more financially astute, you need to get off on the right financial footing.
The new year is the perfect time to start as you can reflect on where you went wrong last year, as well as where you went right.
You can set goals, make plans and, most importantly, make the most of that renewed motivation you have at the beginning of the year.
Even if you’re reading this some time into the new year, there’s no better time to start looking at your financial strategy than now.
But that doesn’t mean you need to be left out in the wilderness when it comes to developing that strategy.
It can do no harm to adopt a financial strategy that has been tried and tested, and who better to assist than Dave Ramsey, one of the most trusted financial experts in the US.
So, I’ve put together some of my favourite Dave Ramsey money saving, budgeting and financial strategy tips to get you started. Let’s have a look!
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Make a Realistic and Achievable Budget
The word “budget” is often enough to send shivers down your spine.
The idea of restricting your spending habits in an orderly and structured manner might sound unappetizing and probably quite tedious, but it’s at the forefront of any successful financial strategy.
Without a budget you’re going in blind and will find yourself splurging on things that add little benefit to your life, let alone your financial status.
Dave Ramsey advocates doing the following when devising a budget:-
- Give every dollar a name. This means allocating your income to a certain expense each month, whether that be for utility bills, debts or for unexpected expenses you might encounter. If your cash is accounted for and allocated, you’ll know its purpose and that it isn’t just surplus money – which is only likely to lead to financial wastage;
- Budget with your partner. Working with your spouse or partner is a guaranteed way to ensure you’re both on the same financial footing for the month and year ahead. It will help you to set financial goals and allow you to keep check on each other’s frugality so you can build for the future. Two heads are invariably better than one!;
- Adopt a flexible budgeting strategy. Special occasions, holidays and surprise expenses have a funny way of creeping up on you. To overcome these you need to be flexible and dynamic with your budgeting strategy. You need to reassess your budget each month. Budgeting is not a one size fits all approach – you need to take each month as it comes to dodge those financial curve balls.
Change Your Habits
Ever heard the saying that insanity is doing the same thing over and over again and expecting a different result?
Well the same applies to your finances!
To make any measurable change to your financial health, you need to embrace change as a positive, rather than negative event.
This might mean employing a certain level of discipline and even courage to your spending habits. But when you make changes and stick to them, you’ll reap the benefits with less debt, more savings and less financial stress.
Here’s a few ideas:-
- Cut down on food you enjoy but don’t need. Do you really need your fifth Starbucks of the week? Do you really need to indulge in that take out?;
- Cut back on designer clothes. Fashion trends are copied throughout the fashion world. This means you can often buy similar clothes from lesser known brands to those made by designers. If you can’t escape the clutches of designer branding, hit the sales to maximise your savings;
- Buy discounted groceries. Always look for the special offers instead of paying full price;
- Embrace the sharing economy. That could mean car sharing to work, using your friend’s Netflix account (until they put a stop to it) or buying groceries in bulk with a friend.
Live Within Your Means
That’s right – stop spending money you don’t have or can’t afford to borrow!
Act your wage!
If you don’t you’ll constantly be paying off debts which means you’ll have no capacity to save or invest in your future.
It’s crucial to any successful budget that you are sensible with how you allocate your income. This means forgetting about material possessions you don’t need in your life!
Yes you might get jealous of your neighbour’s brand new SUV, but does it get him or her to their destination in a materially different way to your vehicle? Probably not!
Moreover, it’s probably on finance anyway!
So try harder to make do with what you have. The dream is often better than the reality in my experience!
Clear Your Debts
If your debts outweigh your savings and ready cash, then you’re walking a financial tightrope.
You need to focus on eliminating your debts now and not tomorrow.
Dave Ramsey advocates adopting the debt snowball. This means focusing on your smaller debts first and working your way up to the larger ones.
By approaching debt in this fashion, you will reap encouragement from paying off the smaller debts first, which will plant a seed of motivation and spur you on.
In turn, this will set off a chain reaction of debt eradication and before you know it, you’ll be debt free!
At least that’s the idea!
Stop Spending Debt
I am not even sure if that sentence makes sense, but I’ll just explain…
The idea is that if you’re using credit cards to buy everything, perhaps because you’re tempted by rewards your credit card company gives you, then this is not conducive to a successful financial strategy or a debt free existence.
The idea of rewards is to keep you spending and, yep, accruing further debt and paying more interest in the long run.
It’s essentially clever marketing by your card provider to keep you in an endless cycle of debt so profit is made on your interest.
You need to break from its shackles and start spending only what you can afford. So ditch the credit cards and aim to be debt free or almost debt free.
Do Not Buy New Cars
In the US, a brand new car depreciates in value by 20% in the first year after purchase and then 10% each year thereafter.
That is crazy!
Cars are so well made these days that you can certainly afford (from a reliability point of view) to buy a car that is a few years old.
You certainly cannot afford (from a financial strategy point of view) to buy a new car with these crazy levels of depreciation!
So go for a slightly older car and be a wise old owl and not wet behind the ears!
Create an Emergency Fund
You would be stark raving loony bonkers not to have an emergency fund.
Not only is an emergency fund essential for…mmm…emergencies, but it is also very important to keep your financial anxieties at bay!
Life has a very annoying habit of throwing up surprise expenses when you least need them.
It could be your car that goes bang, your roof that blows off or the dreaded faulty boiler (the most annoying and unsatisfying expense in the world!).
Whatever it is, the last thing you want is to be in a situation where something you normally take for granted is out of commission and you cannot afford to fix it!
The size of your emergency fund will much depend on what you can afford, of course, but everyone should try and keep a minimum of $500 for a rainy day!
Increase Your Earnings Potential
The most obvious way to live a more financially stable life is to have more money in the first place.
Easier said than done?
It doesn’t have to be!
There are literally hundreds of ways you can make a little extra money each month and I am not just talking about asking for a pay rise!
Even better, you can actually turn your hobbies into a fun side hustle!
Here’s a few ideas to get you started:-
Separate Your Savings from Your Everyday Money
You do not want to keep your savings muddled in with your every day cash!
Mixing money like this is a recipe for budgeting disaster!
Without separating the two there will be a temptation to use your savings like an overdraft. This is not good!
Not only that but you’ll find it harder to keep track of what’s what.
You can also make your savings account less accessible by leaving the card for that account at home so you aren’t tempted to use it for impulse purchases.
Moreover, with a savings account you can you can often get better interest rates than a standard checking account. So separate the two – your wallet will thank you!
Pay Off Your Mortgage
Obviously this may not be attainable in only one year but that doesn’t mean you shouldn’t be aiming for an early mortgage pay off.
Paying interest on a mortgage is dead money. It’s satisfying no one except your bank. You do not want this!
The biggest expense almost everyone incurs in their life is their mortgage! This mean it’s important and should be prioritised.
Once you’ve paid it off, not only will you make a ton of savings on interest but you can truly call yourself a grown up and be very proud of yourself to boot.
Find the Cheapest Deals
I am no stranger to this one as I realised last year that I was paying well over the odds for a lot of my utilities and other bills.
I tend to find that you don’t always get rewarded for loyalty like you used to and I often notice that I am actually paying more for things like broadband and my mobile contract than new customers!
It’s therefore vitally important for your budgeting strategy that you don’t lose sight of the cost of your monthly bills.
If you do, before you know it contracts will automatically renew and you’ll be often paying more, not less, than if you’d shopped around at the time your contract period was up. This happened to me recently with my car insurance – bummer (but my own silly fault)!
The internet has made this job so much easier than it used to be as there are tons of helpful comparison sites that you can utilise to get the best deals. Make use of them – you’ll pat yourself on the back afterwards.
I saved over $500 last year by regularly assessing my monthly bills.
It’s not just the cost you should focus on, but also what’s included in your package. Last year I realised I was paying for a broadband package including extras that I wasn’t even using. I saved around $30 a month just by downgrading.
Take a Packed Lunch
On the face of it this seems like a fairly insignificant thing to be getting hung up with in the grand scheme of things.
I mean – who cares about a few dollars being spent on your lunch?
However, studies show that the average person spends over $3000 a year on lunch!
Make a packed lunch and you can probably cut that by two thirds!
Imagine what you could do with an extra $1000 – $2000 per year just by cutting down on expensive lunches.
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