It could be an impulse purchase that blew your budget, a credit card that got out of hand, or a small investment that went bad. Making a bad financial decision is not uncommon – particularly when you’re in your twenties and still learning the ropes of managing your cash.
Glen James is a financial advisor and the host of the My Millennial Money podcast. He says the good news is you can always bounce back from an unlucky decision and learn from your mistakes by taking steps to avoid similar situations in future.
James says the first step to recover from a financial nightmare is to do “an autopsy of the process which led to the decision” in the first place. You need to identify what went wrong in order not to repeat it in the future.
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He says introducing “boundaries” will help reduce the likelihood of spending on impulse and regretting it later. It could be something like for any purchase over a certain amount – say $100 – you need to sleep on it first. And for decisions involving larger sums of money – purchasing a car or property, for example – you always “bounce your pending decision off a trusted friend, family member or professional” first.
Keep an eye on your debt
Ditch the habit of feeling like it’s okay to go into debt every time you need (or want) something you can’t afford says James. Instead, “devise a plan and work at it. If you have to buy new furniture or whitegoods, only buy when they are on sale and pay cash. Ask for their best price.”
If you have accumulated credit card debt, try and put the brakes on spending until it’s manageable. Then, “look to changing your habits,” says James. He says establishing a savings plan that clears the debt as fast as possible can be worthwhile hanging on to long after the debt is clear.
Automation and budgeting
Understanding your cash flow is crucial to gaining a clear overview of where your money is coming and going. “Budget is such a restrictive word,” says James, saying sometimes it puts people off who think, “it’s all too hard”.
Nonetheless, it’s important to have some type of automated system to remove you from the week-on-week process, he says. “Without a system or plan in place, it’s going to be hard to truly get a snapshot of your current expenses and money available to save or pay down debt,” says James. Start by making a list of your income and expenses over one year to “see if there is leftover money,” says James. From there you’ll be able to determine if there’s more cash coming in or going out.
Once you’ve mapped out that ebb and flow, James says it can be helpful to set up a new bank account for essentials and regular expenses, and transfer set amounts into it. “Your goal is to not spend more than the amount allocated,” says James. “The leftover money can be allocated to fixed bills and savings.”
This kind of prudent financial management can help you better take stock of spur-of-the-moment retail therapy. “Think about how many hours it took you to buy the item you’re wanting to buy,” says James. “Divide the purchase price by your hourly pay rate – it will make you think if you really need it.”
Committing to a spending plan doesn’t mean you have to go without. A final tip: “Look on [Facebook] Marketplace or Gumtree in affluent suburbs for great used stuff at low cost,” he says. Another person’s trash may well be your treasure.
This article is produced by Broadsheet in partnership with Bankwest. See Bankwest’s online money management guides for more ideas to get the most out of your money. The information in this article is of a general and educational nature only. You should consider your own financial position and requirements before making financial decisions.