When it comes to managing your finances , it is important to know that there is no right way to manage your money.
I read lots of other blogs that talk about how they have tackled debt or gone about their investing journey.
And whilst there are some consistent themes among the stories, it becomes pretty clear that there is not just one way to manage your money.
The ways friends, family, work colleagues or even fellow bloggers handle their money will not necessarily work for you.
If you believe that there is a right way of paying off debt, managing your cash flow and saving for your retirement, an argument could be formed that if you are not doing things “the right way”, then what you are doing must be wrong.
I don’t prescribe to this way of thinking.
Of course there are different ways that can help you to reach your goal sooner or to get better returns on your investments, but that does not mean they are right for you.
That’s what is so great about personal finance – it is exactly that personal.
You have the ability to decide what resonates with you and what doesn’t for your particular circumstances.
We all have different goals and dreams, so what is right for me may not be right for you.
I have recently joined a newly formed Facebook group that a friend has set up off the back of a particularly high profile group being shut down for good. I am loving the diversity of opinions in the group so far. I highly recommend you join the Invest in your Future Australia group.
Let’s take a look at some common money situations and how they are a number of different ways you can tackle them.
Paying off debt
In Dave Ramsey’s books there are two ways you can tackle your debt. The snowball method which is where you throw all the money you can at the smallest debt regardless of the interest rate. This is also called the Domino method for those that follow the Barefoot investor.
Or there is the debt avalanche method, which is where you put all your money towards the debt with the highest interest in order to save you the most interest overall.
Both methods have their merits, so you need to decide which one works best for you. Well meaning people might come along and tell you that’s not the way the guide tells you to do it. Or that’s not the way that I do it.
But the reality is, if you make a choice either way you cannot go too far wrong. You have already made the decision to tackle debt head on, and that you should be proud of.
For me personally, if I have an interest free loan where the interest only period is not up, I am never going to pay this debt off first even if it is the lowest amount.
I will of course make sure I pay off the debt in free before the interest free period is up, but I will tackle the higher interest loan first.
Your budgeting style
If you do a search for how to do a budget, millions of responses can be found. All offering different methods of how to budget your finances.
Or there are others who prefer the pen and paper method of writing it all done in a notebook.
Some prefer to stick with a simple monthly budget. Or you might be someone that likes to have a detailed picture of all of your income and outgoings and use a spend tracker to categorise what your money is spent on.
There are even some people that work really well with an anti-budget, where they straight away save an amount from their salary for savings and bills. Then don’t worry too much about how the rest of their money is spent.
If you have any kind of budget at all then you are already on the right path. You are paying attention to your finances which puts you ahead of a lot of other people.
For me personally, I have been a few different budget styles over the years. I started out with a really detailed spend tracker, to the point where I knew where every single cent went.
I have since moved to using an App as well as keeping track on a spreadsheet of my cash flow throughout the month.
Property, shares, index funds, managed funds, cryptocurrencies like Bitcoin, and Superannuation. The list is endless when it comes to investing for your future.
As regular readers of the blog will know, property investing has been the way that hubby and I have built our wealth. For whatever reasons investing in shares made me nervous as I didn’t want to make the wrong choice of what company to invest in.
As I learn more and more about index funds, they are appealing to me a lot more in terms of cash flow over the properties we currently hold.
Most of the early retired money bloggers have gone down the index fund path for investing, which helped them to reach financial independence at a fairly rapid rate. However most of them also saved around 60%-70% of their income in order to be able to do that.
Unfortunately for me, that just isn’t practical for us as a family living in Sydney with a large mortgage and two children in child care a few days a week. Child care alone is 25% of our family’s income each month.
What I have come to realise is just because someone else has decided to take a different approach it does not automatically mean their way is right or wrong.
The books and advice you read are often pitched as guides. And that is exactly what they should be seen as. A guide on a way to manage your finances, but not a set in stone plan.
Like I mentioned in my Barefoot Investor review, some of the steps work for me and others don’t. When I read other people’s ideas, I use them as inspiration and simply choose to take on board what I think will resonate best for my personal circumstances.
I try not to judge when other people do things differently from me, and instead see it as a learning experience.
For me, if you are involved in managing your money and don’t have your head in the sand, then to me you are on the right track for managing your money.