The Motley Fool

13 Steps To Financial Freedom Step 3: Get Control Of Your Money

It might sound incredibly basic (maybe even eliciting a Duh from you), but getting control of your money is about spending less than you earn, and using the difference to fund savings and investments to get the miracle of compound interest working for you.

It sounds boring, we know, but let us show you how saving, and not just spending, can be a whole lot of FUN.

Budgeting – the key to a healthy bank balance

Budgeting is neither as scary nor onerous as it sounds.

To start, make a list of your regular bills and how much they cost you each month.  This should give you a good idea of your main areas of expenditure.  If you’re not sure where your money’s going, keep a spending diary: for one month, make a note of everything you spend, even if it’s a $1.20 sugarcane drink at the hawker centre.  At the end of the month, add it all up to see how much you spend and where you spend it.

Once you know your outgoings, it’s time to start trimming them.

Don’t worry, we are not asking you to give up your daily cup of kopi siu dai at Ya Kun and to switch to instant 3-in-1 coffee instead.  Most of the time, there is no need to cut back on the things you enjoy, but to get better value for money for the things you need to get.  However, if you’re spending far in excess of your income, you will need to take more drastic steps, but for most people, a trim should do it.

Trimming the fat – the same products for less money

Start trimming your outgoings by reducing one major bill each month, prioritising the bills you pay on a regular basis.  Most people can save hundreds of dollars, if not more, just by making a couple of switches. You shouldn’t have to look too hard, either…

  • Financial products
    Changing your mortgage, savings account or credit card is often one of the easiest ways to generate some surplus cash.
  • Getting around
    If you’re a driver, you can probably save some money on car insurance by switching to a cheaper provider – just compare online. Women drivers and drivers  with clean records can stand to save the most here.
  • Getting away
    Fancy a break? However and wherever you’re making tracks, you can save at least the price of a meal by shopping around before you buy. With dozens of online resources dedicated to finding the cheapest fare, accommodation,  excursions, and breaks, there’s just no excuse for paying too much for your holiday fun.

To get a better control on the various aspects of your finances, you can also visit our guide to managing Your Money.

A final note on getting control of your money

Getting control and keeping control are different things, and there’s no guarantee you won’t fall off the straight and narrow at least once.  When this happens, just take stock of why you fell – so you can learn from your tumble – and calmly and proudly climb back on the horse.

Remember we introduced you to the miracle of compounded returns in Step 1?  Well, miracle of all miracles, if you used the money you saved each month to fund savings and investments, you can get the miracle of compound returns working for you. From modest beginnings, you too could accumulate serious wealth.