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HOW TO RETIRE EARLY
MONEY DECISIONS IN YOUR 20's FOR EARLY RETIREMENT IN YOUR 40's.
12 Month Money Challenge (that anyone can do!)
Posted on: 4/1/2018
It’s January, which means New Year's resolutions are hanging tediously in the balance as we fight against our every urge to slip into last year’s bad habits.
  
You're probably reading this because you've decided that this time next year you want to have more to show for all your hard work than you do now.

The good news is, if you earnestly complete my 12 Month Money Challenge, by the end of the year you will:

The 12 Month Money Challenge is about:
• Decreasing your debt
• Putting away savings
• Preparing yourself to invest, and most importantly
• Breaking bad habits that have been holding you back

The best thing about this plan is that you can do it in 12 months or, if you are keen, you can roll it over in just 12 weeks!

If you're reading this outside of January, you also don't have to wait until January rolls round again. Just like promising yourself you'll "go to the gym tomorrow", prolonging something until "next year" usually means you'll never get around to it.  
Month 1: Observe and Report
If you’ve ever read Alan Carr’s The Easy Way to Stop Smoking, you’ll be familiar with the no initial commitment style of my plan.
  
Most resolutions - be they about health, wealth or personal relationships - tend to impose immediate demands that are quickly abandoned. If you've ever been part of a gym, you'll know that January gets plenty of "new years resolution seekers" but by February, most of them are gone. 

Just like going to the gym, managing your finances is a habit which needs to be built and sustained over time. You can go to the gym 5 times in one week week and work your ass off but if you stop going, you'll never beat the person who goes once or twice a week consistently for the whole year. Consistency beats a one-off effort any day. 

Which is why we’re easing you into monetary mindfulness. We don't want to scare you off by making drastic changes. 

In fact, in the very first month, it’s essential that you don’t make any changes at all.
To draft an effective budget, you first need to get an accurate snapshot of your current spending habits, which is what you'll be doing in the first month.

The easiest way to do this is to:
• Pay for everything with your card to keep your purchases on your bank record and;
• Keep a diary of the details of each transaction because sometimes they are not immediately apparent from the biller’s name on your bank statement.

And remember: You need to be completely honest. 

Ruthlessly report everything. Not a late night 7-11 pie, $20 loaned to a friend nor a half tank of petrol should slip through your net.

Month 2: Bite the Budget Bullet
You knew this was coming. The fact of the matter is that what gets measured, gets managed. If you don't know where you're currently spending your money, how can you manage it. 

It doesn’t matter if you create your budget using a diary, an app, or an Excel spreadsheet. The important thing is that you make it as comprehensive as possible so that you can set realistic finance goals.

There’s plenty of information out there about how to write a budget, so we’ll just summarise the four main steps:

1. Evaluate your net worth
The first thing you need to do is to find out if you’re in the red or the black. To do this, tally up everything you owe (credit cards, loans, money borrowed from friends and family, HELP debt) and everything you own (savings, cars, expensive equipment, equity in your house).

If the final figure is positive congratulations! You can focus on saving and investing.

If the final figure is negative, don’t worry! Your prime focus is going to be debt reduction, and the sooner you start, the better you’ll feel!

2. Calculate your expenses
Remember that meticulous record keeping you did in month one? Now is the time to work your way through those notes and bank records to figure out how much you’re spending. Don’t forget to include monthly payments for quarterly or yearly expenses such as car registration or rates.

Here's an examples to give you some ideas:

Monthly Expenses
Rent: $845
Electricity: $70
Internet: $30
Phone bill: $50
Private health: $110
Netflix: $10
Gym: $60
Public transport to work: $110
Car insurance: $40
Groceries: $130
Buying lunch when at work: $195
Takeaway/eating out: $150
Alcohol: $160
Misc expenses: $430
Haircuts: $30
Fuel: $20
Total: $2440 monthly 

Yearly costs:
Car rego: $700 = $58 per month
Estimated EoY tax bill: $2000 = $166 per month


3. Calculate your income 
This step is easy for people who are on a salary but can be more complicated for those getting multiple streams of income or business owners living off of irregular payments. If the latter refers to you, it’s a good idea to average out your income for the last 6 or even 12 months to get a ballpark figure.


4. Put it all together
Much like you did with your net worth, you’ll need to enter all this information into one document and figure out if you’re making money or losing money, and by how much.
Month 3: Cut the Fat
By now, you might be reeling from the results of your recent financial health checkup. Regardless of whether you’re doing well or struggling to stay afloat, your wallet will thank you for this month’s exercise: Cutting the fat from your budget.
  
Expenses you should axe straight away include:

Subscription services: Sure, Netflix is only $9.99 a month, but when you’re also paying $10/month for Stan, $15/month for YouTube Red, and $15/month for Audible, you’re looking at over $600 a year in entertainment costs. If you can’t live without some entertainment, choose one subscription service and read those books you bought last year.

Groceries: As I discussed in this blog, you can trim grocery bills by shopping at Aldi.

Memberships: Stop kidding yourself, find out if it’s cheaper to cancel your unused gym membership than it is to keep it (I may do this soon too).  

Month 4: Consolidate Debt
You’ve probably heard those cheesy ads on TV that promise you relief from crippling debt if you’ll only pick up the phone and talk to a debt consolidation specialist. Well, those advertisers have a point.

This month, research debt consolidation loans and credit card balance transfers, then choose the option that allows you to stop spending money on interest and start chipping away at your actual debts. 

If you're struggling, Moneysmart.gov has an array of links, resources and contact details for help with debt consolidation

You may want a financial planner’s help with this task.

Month 5: Automate Your Savings Like a Pro
Even if your goal this year is debt reduction, you still need to have access to an emergency fund. Fortunately for you, we live in an age where saving can be a mostly painless process.
  
Options for saving automatically include:
• Christmas savings accounts
• Automatic transfers to regular savings accounts with no cards attached
• Direct debits to accounts with online banks such as Ubank
• Roundup apps like Acorns

Month 6: Shop Around
When drawing up your budget in month two, you will have come across certain expenditures that you cannot eliminate altogether. But, just because you can’t stop paying them doesn’t mean you can’t get a better deal.

Take a day out of every week this month to shop around for better offers on your four most significant recurring expenses. You should be able to save money by either switching company or by just asking your current provider for a better deal.
Month 7: Get Ahead
Congratulations! You’ve made it past halfway through the financial challenge. This month, your goal is an easy one: Pay one bill in full in advance. Which bill you put in credit will depend on your cash flow and how disciplined you’re feeling. 
Month 8: Increase Your Income
When it comes to financial health, cutting back on unnecessary expenditures is only one half of the equation. The wealthiest people in the world know that the other half of the equation is about increasing your earning. 

Earn extra money this month by:
• Investing more
• Asking for a promotion
• Looking for a new job in a higher pay bracket or;
Month 9: Size Up Your Superannuation
There’s no denying that looking into your superannuation fund is possibly one of the most tedious, boring chores in existence.

This task is a little more complicated than the other “shop around” goals mentioned in month six, which is why we’ve given it a slot of its own.
This month, you need to:

1. Research the best superannuation fund for you (be sure to compare all fees, fund investment strategies and rates of return). The general consensus among other financial gurus including Scott Pape (the Barefoot Investor) is to go for a low-fee super fund. This is because the rate of return on a super fund will fluctuate from year to year. Some years they actually lose money, but the fees remain constant. This is the easiest thing you can control. 

2. Find out whether you could be paying less by switching to a life insurance policy held within your super fund.

3. Consolidate all of your superannuation funds. Maybe you're lucky to have one fund, but if you've had several employers over the years and just used the recommended super fund, chances are you have more than one super fund. Moneysmart.gov has a tool for searching for lost super

Month 10: Buy Nothing
At first glance, this goal might seem ridiculous if not altogether impossible. How will you survive without buying anything? People need to eat, right?!

The trick to completing this challenge is organisation and discipline. Order your groceries in advance (or pre-buy gift cards), prepay your bills, and purchase fuel cards if necessary. 

Take this challenge to a level you are comfortable with. 

The point of the exercise isn't just to save money, it's to ween yourself off of any impulse buys and curb the psychological thrill of spending.

Month 11: Educate Yourself About Investment
It doesn't matter if you’ve already got an extensive portfolio of you’ve never invested anything in your life, there will always be something new you can learn about finance.
The goal of this month is to come out the other end able to give a five-minute talk off the top of your head about investment. Start learning by:

Subscribing to a podcast: Keep abreast of the latest developments in an investment area that interests you by subscribing to a reputable podcast.

Audiobooks: Don’t have time to read up? Let investment experts educate you while you’re driving to work or at the gym.

Reading a book: Here are a few entry level recommendations which are great for those who are looking for a low maintenance investing plan; The Barefoot Investor by Scott Pape and Mastering the Money Game by Tony Robins. As a side note, Scott has two books. I much prefer his first book which is aimed towards 20-30 year old's as opposed to his more popular second book. Either way, the principles are the same.

For those more interested in property, I like Steve McKnight's 0 to 130 Properties book. For a more in depth view on shares, I found Shares by Martin Hawes to be a solid read.
 
Online courses: If you’re serious about learning, complete a short online course (preferably through a university, not a private training organisation - the world doesn’t need any more Trump University graduates!).

Google alerts: Use three companies you’re interested in as keywords and sign up for Google alerts. Commit to reading the daily summaries Google sends you, and by the end of the month, you’ll probably know more than the average investor.

Month 12: Invest
You’ve spent the whole year getting your finances in shape, so now it’s time to enjoy the fruits of your labour and put all the things you learned last month to work.

If you’re a first-time investor, we highly recommend getting help from an accredited financial advisor with this month's goal.

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