With the financial crisis beginning to bite, many individuals and families are beginning to feel increased financial pressure and stress. You may not have the ability to increase your income at this time but there may be things you can do to cut your costs.

The generations born during the Second World War and shortly after would be familiar with the kind of measures needed to live with limited resources. The world may have changed but there is still a lot that can be learned from the wisdom and experience of our grandparents. Generations born in the last 30 years or so often know little about saving, have been brought up with ready access to credit and an expectation that they can have everything now. For them, weathering this storm will not only involve the physical mechanics of changing the way they spend their money but also a huge mental and emotional shift in their thinking, often breaking the habits of a lifetime.

So where do you start?

Not everyone is the same, we all have different lifestyles, different needs and different demands placed upon us, so it is not one size fits all but generally there are the same basic rules to getting ahead or at least staying on top financially in these troubled times.

If you have a job, this is probably not the best time to leave it unless you have a better job to go to. If you haven’t got a job or a way of making money then naturally this will be your highest priority. Without money coming in, you have nothing to live on, let alone saving or investing.

Assuming you have a job or have some method for making an income, you may now be surprised to learn that it is no longer the most important part of the equation. It is important because without money coming in you will get nowhere fast, but earning a high income, as opposed to a low or moderate income, is only the potential of becoming richer faster, it doesn’t in itself make you rich. There are lots of people with six figure incomes who are only barely staying ahead of their debts, while many millionaires started out making a basic wage.

How you handle your money is as important, if not more important than how much money you make.

In the past, people were paid in cash and only spent what they had in their wallets and purses. They saved for the things they wanted and if they did get a loan from a bank to buy a car or a house, they had to have a long, secure employment history and an incredibly large deposit compared to today.

In the last 20 or 30 years many have been cajoled into taking out large loans, seduced by commercial interests to spend precariously close to their financial precipice, where the slightest nudge could send them into bankruptcy. Credit cards have been granted all too readily and it fed a buy now, worry about it later habit. Many now virtually live on credit, so they are not so much working for themselves but for the banks.

Now is the time to take back control of your financial future.

Take a look at what you are spending your money on. How much of it is absolutely necessary and how much of it is purely lifestyle? Are you spending your money consciously, unconsciously or even carelessly?

First go through all your expenses and identify necessities you can’t do without or change, such as rent, mortgage, electricity, gas, etc. Then identify necessities you can do something about, even look at food or telephone for instance. These are the items necessary for living and earning an income, but some action could be taken to cut costs. You will have to be hard on yourself, we are not talking about any lifestyle items, there is plenty of time for those later, just the bare necessities. Ask yourself, do I really need it or do I only think I do or can I make some changes so I can spend less to have it?

Yes, you have to eat, but do you have to buy your lunch everyday? If you took a pre-prepared lunch to work and drank the office-supplied coffee, instead of visiting your local coffee shop every morning, well, I’m sure you can work out what you can save. Do you have to drink the best, most expensive wine with your dinner? Is it really that good, or is it just the label? Would a less expensive drop be just as good, or could you drink the more expensive wine less often. Many tend to celebrate and surround themselves with the trappings of success before they are earned, but this success is only an illusion.

Once you have taken care of the necessities, work out how much money you have left. Allocate some to spend on yourself, to allow yourself some pleasure or you will begin to wonder what you are working for but don’t go overboard and keep to your budget. Then put as much as you can into paying off your debt. Pay off the credit cards, and then cut them up; use debit cards instead, so you are only using the money you already have earned. Pay off the mortgage on your home if you have one, it is an asset which is important but it doesn’t earn, so the sooner you have it paid off, the better.

Once you no longer have personal debt, you are no longer working for the banks or credit agencies benefit and effected by economic forces that are out of your control. If you are in this position, congratulations, you are in the perfect position to invest and believe it or not, it is the perfect time to do it, but it is preferable to invest with spare cash and get reliable advice. If you feel you have to borrow to invest, make sure the income you make from that investment exceeds your costs, so that it is positively geared. No matter the investment, it is always best if it is putting money in your pocket from day one. If you must use the banks and credit agencies, don’t let them use you.

Make your money work for you, not the other way around. This is true success and it is certainly worth celebrating.

Max Coulson

Sydney, NSW, Australia