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 from pay to pay with no savings plan
Most people wait to the end of the month and save whatever money is left over after spending. The solution to this problem is implementing the strategy of ‘paying yourself first’. This means you allocate some of your pay to a savings account first, then only spend whatever money is left. 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 via an automated bank transfer the day after your pay hits your bank account. 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 into a savings account,then automate it so you don’t have to think about it again. 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.
Afterpay, credit cards and other weapons of financial mass destruction
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.
Beware of Afterpay and other similar services. If you plan on applying for a home loan any time in the future, this may negatively affect your ability to secure the loan. Banks do not like seeing Afterpay transactions and it may lead to a decline on your future loan application.
Failing to save for emergencies
You should aim to save 6 months of your after-tax income in an emergency account. It is not a matter of if, but when a financial emergency will arise. Be prepared,instead of leaving things to chance. Financial planners will tell you the importance of saving for tough times. Most families simply monitor their bank account balance, but don’t have a budget or savings plan in place. You need to allocate some of your cash flow each month to building an emergency account which will act like a ‘financial air bag’ in the event of an accident, illness or financial disaster like the loss of a job. 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 pay 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 2019 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. Most people would prefer to own their own home, in a nice suburb. The problem is that houses and units in Sydney are very expensive when compared to wages which have been flat for a number of years now. 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 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