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Ask Paul: My income went up $10k but I can't stop spending every cent

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I am 43 and have just started my dream job with a major newspaper.

My problem is that I'm earning $10,000 more than I did in my last job, yet I still manage to spend every cent.

I never pay a bill late, and put a bit extra into my mortgage, but most of my money is frittered away on little things.

paul clitheroe ask paul cant stop spending money

I've never invested in shares, and am keen to, but I wouldn't know where to begin.

What would you recommend as the best way to get ahead, start investing and build up my savings? - Paula

Big congratulations, Paula. I am delighted for you that you have found your dream job. We spend enough time working, so we really should enjoy it!

The first challenge for you, though, is not investing; it is behavioural change. My suspicion is that budgets only work for the truly disciplined, which is not me and possibly not you.

How about you try this? Each pay day put, say, 10% immediately into a separate account. Then spend the 90% left over as you like. But you can't touch the 10%. This is called "pay yourself first".

Once you do that for a few months, your behaviour will change to adapt to your new income. You will have some short-term pain.

Once you know you can sustain this, then I'd look at a low-cost indexed share fund. There are quite a few about - Vanguard and BlackRock are large in this area.

If your income is above $37,000, I would suggest that topping up your super via salary sacrifice is an even better idea.

You get a tax break here as well. Super fund returns have been very good and you can't touch the money until you get into your 60s.

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Paul Clitheroe AM is a respected financial adviser and Money's founder and editorial adviser. He is chair of the Australian Government Financial Literacy Board, and author of several personal finance books. Click here to email Paul your money question. Unfortunately Paul cannot respond to questions posted in the comments section.
Comments
Andrew Pidgeon
December 11, 2019 9.13pm

I agree with Paul's ideas of "saving" 10%, but I think people still need an extra pot of money to spend on medium-long term goals.

For instance I've set up separate accounts for holidays with my two daughters ($300 per month) and also to update my car every 5-10 years ($1000 per month).

They may sound like a lot, but I want to pay for the flights, accommodation etc ahead of schedule but also have spending money for when we go to a tourist attraction or experience. The car will still be a 2nd hand one, but it won't need a loan which is a great feeling because cars always depreciate.

I use the Raiz App to facilitate my small (incremental) savings habit and salary sacrifice an extra 15% into Super.

It all adds up, but most importantly I'm saving for my future spending NOT hitting the spend button and hope I can pay for it later.

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