Uncertainty leads to worry. We have uncertainty about our incomes and the economy, yet 86% of us don’t know how much our regular expense are. It’s no wonder so many of us are worried about money. In normal times, money is one of the top 3 stressors, but right now, with a recession almost inevitable, we need to take action to preserve both our finances and our mental health. It’s also critical right now that those of us with at least one income in the household, free up the phone lines for people who have zero income and no way to pay rent or basics until Centrelink comes through.
In 2011, Max was working as a mortgage broker when the franchise group he was with went into administration and his income dropped to zero for 3 months. His wife Kelly, was working in the business too and their three teenage boys were still in school, so it was a very stressful time. They used to be terrible with money and spend most of their income, but had made some changes a few years earlier that helped them get through without any government, or bank assistance. These tips are based on their learning’s and preparation, to help others come out in a stronger position than before all this started.
1. Write a real budget, based on actual expenses. Most of us spend almost double our basics on things we don’t track, or really value. Knowing the basics gives us confidence that we can make lower incomes last, without missing repayments. In his book, ‘Getting your Money $hit Together’, Max recommends the ‘Five-2 Money Diet’, starting with one account for bills and a separate account with a different bank for regular, weekly expenditure. Groceries are highly variable and he adds the cost as a weekly expense, not a bill.
2. Set limits on discretionary spending, that you can stick to and modify as income increases. Max and Kelly have one account for things that we do every week, like groceries, takeaways, coffee and lunches and one account for things they do less often, like buying clothes, gadgets, celebrations, gifts. Max suggests managing this monthly, to match our calendar of events, making the money psychology easier to handle.
3. Set up five bank accounts across two banks. Open new, fee-free bank accounts with a different bank, so we can hide money and better understand it. Max recommends using a different bank for the weekly and monthly discretionary spending and our current bank for bills, holidays and future savings, to make it harder to move money around and be tempted to spend from the wrong accounts. Max and Kelly use banks that have a delay with moving money, to make it impossible to give in to impulses to purchase.
4. Avoid credit cards and any borrowing for personal items. Both give us access to money we haven’t earned yet and may not if things get worse. Human beings are fantastic at using available resources to achieve the outcomes we want. Credit cards make it too easy to buy things we might not have done, if we saw money as a limited resource. Max and Kelly took their credit cards out of their wallets to reduce the temptation of using them and eventually cancelled all their credit cards.
5. Build a buffer and protect it from everything. Some people know this as the rainy-day fund, or mojo account, but having at least 3 month’s-worth of expenses squirrelled away is what saved Max and Kelly in 2011. The Australian average is only 3 weeks, so while this tip won’t help now, it gives everyone a focus on the first thing to save for after covering the basics.
6. Make a plan for your future – plan to buy a home, collect investments, take great holidays. If you need help, read books. The Barefoot Investor is great for people that prefer shares to property and Getting Your Money $hit Together is great for people that love property. Both offer lots of great tips on being better with money and building confidence. Otherwise speak to a Money Coach, or Financial Planner to get further help and advice.
Max founded his current business, Golden Eggs Investment Services in 2011 as a response to his personal crisis. Max and Kelly have been investing in property since they lived in the UK during the GFC and could have retired in 2014. Max is also a qualified teacher and now works as a Money Coach, showing people on a career path how to stop worrying about money and get on the path to financial freedom.
Max Phelps, the founder of Golden Eggs has an honours degree in Economics, diplomas in mortgage broking and financial planning and a post graduate certificate of education. He is very confident, personable and responds well in interviews. Golden Eggs team members are known for being genuine, relentlessly curious and fun. They give back at least 1% of all revenues towards the global goals for sustainable development, through educational causes.