How to Get Your Finances Together in 2022.

Well team, welcome! Firstly to the new office, and also welcome to 2022. Isn't that ridiculous? 2022. Here we are! Anyway, with the start of a new year comes obviously a really good time to hit the old reset button, start fresh, and also set some goals for the new year.

I know over the past say two years, with all that's happened, a lot of people have really been switching on and realizing that they need to be better with money. But no doubt, it's tricky to know even where to begin. So in this video, I want to run through a simple yet powerful five-step plan to improve your relationship with money in 2022. This way, you can start to get ahead and build your financial fortress for the future. So with that said, let's get started.

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So the first point in our five-step plan to start getting better with money is admittedly a boring one, but it is very, very important. That step is to actually take the time to understand where your money is going. You need to know where your money comes in from, how much comes in each time you get paid, where your money goes out to, and how much money flows out to each category of expenses.

How do you do this? Well, simply just log into your bank account and bring up your history for the past three months. Yes, the whole past three months. This is important because a lot of expenses like electricity are paid on a quarterly basis. So if you're just looking at, say, the past couple of weeks or the past month, you might not see them pop up there. So definitely three months of expenses.

Then, first things first, you're going to write down how much money flows in from your different income sources. So categorize them if you need to, although most people typically just have one income source. Then, with your income, just add it all up so you know how much money hits your bank account across a three-month period.

From there, flip the script and look at how much money leaked out of your bank account over the past three months. So write down your different categories of expenses. For example, an obvious one might be rent, or groceries, or car expenses. So we're talking fuel, or insurance, parking, registration. You might put down power or water, subscription services, gym membership, takeaway—just really any category that's applicable to you.

Then, take the time to actually add up how much money flows out to each expense category. Do take the time to get it right because the reason you're doing this step is to really just keep yourself honest. A lot of people say they think they only eat out twice per week; really, it's four. A lot of people think they only spend fifty dollars per week on fuel; really, it's eighty dollars.

So this step is to just make you look at the facts and understand how much money is coming in, and then where all of that money actually goes out to. That's a really big first step to take. Once you understand your cash flow position, the next step is to start actually, you know, taking action.

The next step in our process is to list out any high-interest debts you have and just start paying them off. Now, we're not talking about your mortgage at three percent; that's a low-interest debt. What I mean by high-interest debt is credit card debt or personal loans. These things will kill you if you don't pay them down.

For example, the average annual credit card interest rate in Australia as of August 2020 was twenty percent. Imagine you had like a thousand dollars of credit card debt that you couldn't pay down. After one year, that debt is now one thousand two hundred dollars. Year two, you're close to fifteen hundred dollars, then seventeen hundred dollars. By year four, your debt has doubled every year you can't pay it down.

The penalty gets even worse; the hole gets even deeper, and it can very quickly snowball you towards bankruptcy court. Here's the thing: people get so excited about things like stock market investing, but at the end of the day, the average annual stock market return is like seven to eight percent.

So think, if the stock market is pushing you forward at eight percent, the credit card debt is making you go backwards at twenty percent per year. Each year, you're still going backwards at twelve. So if you have high-interest debt, don't bother investing. Just focus on getting rid of that debt; it's effectively a guaranteed twenty percent return for you that beats any stock market strategy you could implement.

So definitely tighten the belt, stop the unnecessary spending, and get rid of the personal loans and the credit card debt. Once you do that, the shackles are really lifted, and you can actually start pushing yourself moving forwards.

Speaking of moving forward, the third step in our process is then to start accumulating a savings buffer. So forget the stock market, forget Bitcoin, forget all that stuff. Just save up some cash in your bank account. I know inflation kills savings; I know you should invest your money. I know all that, but the one advantage of cash in the bank is, well, it's the most liquid asset there is. It's right there; it's ready for you to use whenever you need it.

That's what the emergency fund is all about. It's a cash cushion for you to fall on if things go wrong. So how much should you save up? Well, this is kind of like asking how long a piece of string is. We shouldn't look at this in absolute terms either; we should look at it relative to your expenses.

The general rule of thumb is to have a minimum of three months of living expenses saved up in your emergency fund—between three to six months usually. If you have more than six months' worth of cash in the bank, in all honesty, that money is probably best utilized elsewhere, like investing. But we'll get to that in a second.

So three months' worth of living expenses—how do you figure out what three months' worth of living expenses are? Well, luckily for us, we already did that in step one. Log into your bank account, get the history for the last three months, and just add it all up. Then you have your savings target; you know what number you have to hit.

You know how big your emergency fund needs to be. It might be five thousand dollars, it might be ten, it might be twenty. Different people, different lives; your emergency fund will be different from your neighbor's. But know your number—three months at least of living expenses. Then, each fortnight when you get paid, just contribute to your emergency fund slowly but surely until you save up that amount of money, until you hit that goal.

And then what? Well, it's worth noting at this point we're already doing very well. We know how much money we make, we know where our money goes, we've eliminated the really punishing debts, and we've even got a cash cushion that we can fall back onto in an emergency.

So it's worth realizing this point: from here, the steps that we're going to take are just about now making a good thing even better. Our next step is to always look for ways to increase your income. This is incredibly important if you want to start really getting ahead financially.

A lot of people will just tell you to save more, cut this out of your budget, eat ninety-nine cent bread for the rest of your life. Honestly, even I used to preach that stuff a few years ago. But trust me, don't worry about cutting down an already lean budget; just focus on increasing your income.

I can almost guarantee that your efforts trying to increase your income will make you way more money than you would have saved by trying to cut back even more. So how do you increase your income? Well, this will mainly be from getting paid more for the work you already do, or taking on more hours, or getting another job, or starting a side gig.

Personally, I don't like the idea of taking on another job or forcing yourself to work more hours. I much prefer the idea of getting paid more for the same number of hours or starting a side project that actually interests you—something that's truly yours. But firstly, getting paid more for the hours you already work; this really comes down to your annual performance review, and here's how to crush it.

Okay, don't go in thinking you're entitled to a pay rise; you're not. Go in there and pitch your boss on a situation that is better for you, but it also works better for them. For example, you're a physiotherapist; you might say, "Hey boss, you know I've done some research, and I think we could use our floor space to run some physiotherapy-led exercise classes.

You know, this could be a really good additional service beyond our one-on-one sessions, and it would also help increase average spend per customer. I would be happy to run three classes per week as a trial, and we could charge the clients twenty dollars per class. If we had eight people per class, that would be an extra four hundred eighty dollars per week, and if we did, say, a seventy-thirty split, this could give your business an extra three hundred thirty-six dollars per week, which would add up to seventeen thousand four hundred seventy-two dollars for the clinic per year.

That's at no extra cost to you. Do you want to try it?" Who's going to turn that one down? This is just one example, but you really just have to put forward a favorable deal that's realistic, and you know if you do the research beforehand, no doubt you can come up with a convincing pitch that ultimately leaves you with more money in your pocket at the end of each fortnight.

So give it a go! Try and get paid more for the hours you already work. Otherwise, try and start a side gig; pick something that you actually want to do—something that doesn't feel like work to you. Then do it on a Saturday morning or a Tuesday night; see if you can monetize it. You know, these are things like mow lawns, wash cars, walk dogs, I don't know, knit blankets, run a trash and treasure stall at the market, start a YouTube channel—just do something that you actually find enjoyable, and you won't feel like you're working.

Plus, most likely, your enthusiasm will come across in the work that you do, and usually, that leads to more income. So definitely try and increase your income; that will really help push you ahead financially.

Let's do a bit of a recap at this point. We're doing pretty well; we've really just eliminated the stuff that's holding us back, and now we've worked to increase our income. So our cash flow should be pretty positive at this point.

And then from here, the icing on the cake is to take a portion of our excess cash flow and invest it. We're going to take those dollars we earn, and we're going to make them work for us to make us even more money. This isn't really as hard as you think; we're going to use the stock market. But you know, we're not interested in stock picking here.

All we're going to do is just hop on the roller coaster that is the stock market and go along for the ride. Because here's the thing: the stock market goes up and down; you know it's unavoidable. Sometimes you'll have made money on paper; other times, you'll be in the red just from the fluctuations of the market.

However, if you leave that money invested for decades, well, on average, the stock market gives out a seven percent per year return. That's pretty epic! You won't get that every year, but history suggests that if you own a little sliver of the top 500 companies in the United States, and you just stick with it, you'll probably average out over the long run to seven percent annually.

Now, have a look at this: say you can put five thousand dollars towards your passive investing each and every year at seven percent per year. After five years, you will have put in twenty-five grand, and you will have earned three thousand seven hundred fifty-four dollars in compound interest. It's free money; that's pretty cool!

But watch this: after ten years, you'll have invested fifty grand and earned nineteen thousand eighty-two dollars of compound interest. This is better! But wait, after twenty years, you will have invested a hundred thousand dollars of your own money, but you will have made an additional one hundred four thousand nine hundred ninety-seven dollars for free.

The longer you leave it, the better it gets. So I'll leave a link to a compounding calculator down in the description below, and I'd encourage you to play around with it and see where you could get over time at seven percent per year.

I should also add that for this strategy, you don't need to go and buy into every single company in the S&P 500; all you need to do is find an ETF, so an exchange-traded fund like the SPY. The fund actually does all this for you. SPY will invest in the top 500 companies in America.

So by buying the shares of that market-tracking ETF, you actually own a very small sliver of 500 companies, and it means you don't have to pay brokerage to make 500 investments; you can just pay once. Very handy indeed!

But overall, guys, that is my five-step process to becoming a financial powerhouse. Number one: understand where the money is going. Number two: kick the high-interest debt. Number three: build an emergency fund. Number four: increase your income. And then number five: invest a portion of that excess cash flow into passive investments in the stock markets.

Anyway, guys, that will just about do us for today. Hope you enjoyed the video. Leave a like on it if you did; subscribe to the channel if you're new around here. We've got content coming out all for the rest of the year, so definitely jump on board. Now's a great time to do it. If you're interested in how I go about my investing, you can check out Profitful—links down in the description below if you want to check out that passive investing strategy, a full walkthrough course. So that's available to you if you want.

But guys, that will just about do us for today, and I'll see you guys in the next video.