A Galaxy Research study revealed that more than 50 percent of Australians have resolved to save money this year, with almost 40 percent of families admitting they are experiencing financial difficulties.
Financial planning is important so you can enjoy the life you want, and secure your future. A major money mistake can compromise your financial health, so it’s imperative to ensure that you are taking the appropriate steps to manage your finances.
In this post, we’ll discuss the biggest financial woes you must avoid at all costs if you want to step up your financial game for the long term.
Living pay cheque to pay cheque
You may have incurred some personal or credit card debt, but it is still crucial to your financial well-being to allocate some cash to a savings account every month. You can do this by living off a certain percentage of your monthly income and automating your savings. For example, putting 10% of your income into a savings account every month. If that’s not possible, then lower it to five percent. This year, make a conscious effort to put a specific percentage of your monthly pay cheque into a savings account,then automate it so you don’t have to think about it again. You can organise to have 10% of your pay directed to a different bank account – your ‘saving account’, with the other 90% directed to your ‘spending account’. Monitoring your cash flow is key in making wise financial decisions that will have a huge impact on your life now, and in the future.
Failing to pay bills on time
You’re busy, I know. However, frequent late payments can lead to penalties, and may even affect your ability to secure a loan in the future. For those bills that are a fixed amount, establish direct debits each month/quarter. This means that you don’t have to remember to pay the bill, it happens automatically.
Purchasing a new car
New vehicles tend to lose up to nine percent of their purchase price the moment they roll off the lot; and up to 45% over the first 3 years. This excludes the cost of interest that you’ll pay if you’ve borrowed money to finance the purchase. If you really need a new car, consider buying a well-maintained, used car that still has a manufacturer’s warranty, that you can purchase with cash.
High interest credit card and personal loan debt
Every year, consumers spend millions of dollars in interest on consumer debts like car loans and credit card debt. To boost your financial security,and increase the amount you can save and invest every month, make the repayment of high interest, non-deductible debt your top priority in 2017.
Australia has more than 16 million credit cards.Get out of your monthly misery and pay down your credit card and personal loan debt as soon as possible; or speak with a Mortgage Broker to see if you can consolidate the debt at a much lower interest rate.
Failing to save for emergencies
It is not a matter of if, but when an emergency will arise. Be prepared,instead of leaving things to chance. Financial planners will tell you the importance of saving for tough times now. Most families simply monitor their bank account balance, but don’t have a budget or savings plan in place. Every time you receive your paycheque, take a huge chunk of it and put it in savings. Leave it there and don’t be tempted to take it back out. Don’t wait until the end of the month to save whatever you have left, because more than likely you will have spent it all and have nothing left to save.
Failing to monitor expenses
Much of the average person’s monthly paycheque is lost to what has been referred to as the “black hole” of consumer spending. This refers to the trivial purchases you easily forget about, but can add up to a significant percentage of your income. To avoid this, choose to make 2017 the year that you start monitoring your expenditures. The advantage of using a spend-tracking system is that you will be able to pinpoint funds that have been wasted on things you don’t really need, and redirect the money toward more important purchases, particularly those that are in line with your financial goals. One tool to use is the ATO’s TrackMySpend App.
Committing to a mortgage that is too big
This is a very sensitive topic, especially with Sydney’s house price boom over the past few years. Most people would prefer to own their own home, in a nice suburb. The problem is that houses and units in Sydney are now very expensive when compared to wages. Even if the bank will lend you the money, it’s always a better idea to start with what you can afford to repay, rather than what you can borrow. ‘Rentvesting’ has also become a hot topic with people choosing to rent in the suburb they want to live, and buying investment properties to accumulate wealth and receive rental income. I believe that this will become more common as first home buyers are priced out of the Sydney housing market.
Not maximising your superannuation
Every time the government makes major changes to superannuation rules, including including self-managed superannuation (SMSF), there are two courses of action:
1. Take advantage of the existing rules before changes take effect, or
2. Adapt to the new rules so you can use them properly when they come into force
This year there are two halves to multiple facets of super: The first six months when the old rules apply, and the remaining six months, post-July 1, when the new rules come into force. They are both worth examining, especially regarding making contributions to your super.
There are two ways to make substantial savings for retirement through superannuation. The first is through regular contributions – either tax-deductible or after-tax contributions. The latter can be sourced from:
- The sale of investments
- Savings in a bank account
- Downsizing a family home
……just to name a few.
Second, super can accrue from investment earnings that the contributions generate via compound interest. Generally, the money you have save, the more interest and dividends are received.
Not having written financial goals
While many consumers are vaguely aware of what they want out of their income, only a handful take the time to identify specific financial goals, come up with a plan, and write it down. This is important because a written goal has the best chance of being achieved. Moreover, people who have a detailed plan are ten times more likely to achieve their goals.
So, take some time to sit down and contemplate on what your financial goals are, and then make a written plan on how to achieve those goals. In so doing, you’ll get the extra motivation needed to turn your financial dreams into reality. Make 2017 the year that you take full control of your finances, and use the money to achieve all the goals that are important to you.
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If this article interested you and you would like to speak to Pat Casey on the phone, or meet at either our Sydney CBD or Southern Sydney offices, select a time to speak with Pat.
At Assure Wealth we specialise in helping busy, successful families structure their finances to achieve peace of mind. Author: Pat Casey – Managing Director& Financial Planner, Assure Wealth
To find out more, visit us at:www.assurewealth.com.au