ICKY DEBT – I am talking about store cards and credit cards. Let’s get rid of them and get you on track to a healthier financial you!
- Google “best credit card balance transfers” and choose the longest term for the lowest interest rate. The term is more important that the interest rate, or the fees. The longer the term the more time you are giving yourself to get rid of bad debt. Transfer the balance of your card and cut up both or all of your credit cards. You might find that banks will only transfer 75% of your credit card debt. Do the research and find the best deal. It’s the best shopping you will ever do for yourself.
- Cut up your new and old credit cards. You can’t reduce ugly debt and keep accumulating it at the same time! If you have ugly debt then you haven’t been living within your means. Get rid of all temptation to overspend.
- Get a direct debit card and go on a cash diet. That way you simply cannot spend more than you earn.
- Pay off whatever is left on your high interest credit cards first, the 25% that may not have been transferred across to the lower interest rate card.
- Divide the amount of money owing on the low balance credit cards by the months you have on the low rate and set up a direct debit to pay that amount off each month. If you can’t manage to pay off the debt within the time period, do the best you can and then repeat the process.
- Look at your spending patterns. Where your money is going is the first step to saving money. Cut costs wherever you can. Keep reducing your bills. There are always ways to save more money. ASIC Smart Money website has a great budget spreadsheet.
- Never pay full price for anything, better still don’t buy clothes or go on expensive holidays until your ugly debt is paid off.
- Think before you buy everything.
- Don’t eat out, or if you have to, go out for breakfast, or have a picnic somewhere beautiful. It’s cheaper.
- Have long range vision and be patient. See yourself without having credit card debt. What is that going to feel like? Imagine it.
By Nicole Heales – Dip F.A (Sec Inst) MComm Dist (F.P) Cert IV
Find out more about Nicole, one of our Trusted Advisors, here.
If you care about your health and wellbeing, then you probably have a plan in place to help you reach your goals.
In the same way, it makes sense to support your financial health with a range of ‘good habits’.
Here are five simple steps you can take to ensure your super account is the healthiest it can be:
- Consolidate (or roll over) your super into one account to avoid multiple fees and their impact on your super balance. You’ll also help reduce your paperwork and carbon footprint by cutting down the amount of mail you get.
- Find lost super — this is vital if you’ve ever changed your job, name or address. Millions of Australians currently have unclaimed super. Useful websites are gov.au/superseeker and unclaimedsuper.com.au Best of all, it’s free to find your lost super!
- Put a little away now to benefit later in life by making voluntary before-tax contributions (also known as salary sacrifice) to your super. You may reduce your taxable income and contributions may be taxed at a lower rate than your income. Just remember, annual contribution caps apply.
- Take advantage of the government co-contribution scheme to receive 50 cents for every $1 you contribute (after tax) to your super — up to a maximum of $500. The maximum co-contribution reduces with every dollar you earn over $35,454, and cuts out after $50,454. Visit gov.au/super to find out if you’re eligible.
- Make an active choice about your investment options to reflect the level of risk you’re comfortable with and your retirement goals. Visit your super fund’s website to find out your options.
With thanks to one of our Supporting Partners, HESTA, for this post.
With more than 25 years of experience and $33 billion in assets, more people in health and community services choose HESTA for their super.
Issued by H.E.S.T. Australia Ltd ABN 66 006 818 695 AFSL 235249, the Trustee of Health Employees Superannuation Trust Australia (HESTA) ABN 64 971 749 321. This information is of a general nature. It does not take into account your objectives, financial situation or specific needs so you should look at your own financial position and requirements before making a decision. You may wish to consult an adviser when doing this. Before making a decision about HESTA products you should read the relevant Product Disclosure Statement (call 1800 813 327 or visit hesta.com.au for a copy), and consider all relevant risks (hesta.com.au/understandingrisk).
Worried about a big bill hitting you expectedly? Finding you’re looking at a scary low bank balance too often? This could be highlighting the importance of a household cash flow. Planning your cash flow will help you get ahead of the ins and outs in the bank account that lead to money worries.
What is a cash flow?
A cash flow or cash flow budget is a plan that sets out all of the planned sources and uses of cash. It’s usually set up by month, so you can see if there are any points during the year when you’ll be particularly short of cash.
What does a cash flow look like?
A typical cash flow has a column for each month, usually laid out in a simple spreadsheet tool. At the top, the template shows all of the expected incoming cash: income, tips, commissions, tax refunds or any other sources. Below that, cash outlays are detailed: outlays on food, transport and other incidentals. Bills that you expect to pay will also be shown in this section, based on when the payments are made. For example, an annual insurance bill is shown entirely within the month when the payment is due.
At the bottom, you’ll be able to calculate the net cash income/outflow for the month. By starting with a current bank account balance, it’s then very easy to project the balance over the rest of the year. In doing so, you’ll know if you’re ever too close to the line. And you’ll have something to check your balance against, for a very real-time measure of how well you’re sticking to your plan.
Lately I find myself pondering the idea I’ve started calling The Tomorrow Bucket.
The Tomorrow Bucket is a simple concept:
It’s the bucket of money (super, bank savings, property, business value) you will have “tomorrow” to meet your needs and wants (assuming that you won’t work forever). Obviously, if you never put anything in there, or constantly take stuff out, the bucket will never fill up.
When I say tomorrow, It’s not so much as in ‘tomorrow’ the day after today, but really it could be any day after that. Maybe it’s in thousands of Tomorrows time.
The thing is, Tomorrow comes about so very quickly. We all sit back and wonder where the time went, where did the years go?.
I’ve met a number of people lately who have arrived at, or are nearing their Tomorrow (retirement, redundancy, ill health etc) and found their bucket was empty – they spent it all yesterday when times were good. These people are stressed and regretful of missed opportunities. They are annoyed they didn’t think ahead.
In my experience, many people do add a little to the bucket over time (at the very least our employers pay into our superannuation), but then find out that what’s in there is not quite enough to fulfill their needs or expectations – so their Tomorrows are unenjoyable and they spend their time frustrated about what could’ve been.
Of course we all know those fortunate people who through good luck or good management have a bucket that seems overflowing and bottomless.
But for the most, we have to make a conscious effort and plan to fill the bucket over time, sometimes dipping in when needed, but still with a commitment to keeping it full enough for Tomorrow. Making long term investments and regular savings will get us there.
For example, saving just $20 each week with a 5% rate of return will give you over $132,000 after 40 years. That’s nearly $91,000 of interest!
Although life shouldn’t be about sacrificing every today for a possible tomorrow, we should all be able to make smart and often simple choices each day, month or year to give ourselves a shot at reaching Tomorrow with a bucket full enough to reach our dreams.
For me personally…. In my “Tomorrow”:
- I want to give my kids a sound education and some extra-curricular and travel experiences to open and broaden their minds (and I’ll probably need to buy them a car to drive)
- I’d love to see some of the worlds amazing places with my hubby,
- I’d love to establish and nurture a beautiful garden and veggie patch,
- I want to do more for charity.
How can I do all this without throwing some money into The Tomorrow Bucket today?
A drop of water every day might be a safer bet than hoping it pours just when you need it.
By Casey Kropman
Casey Kropman BComm, Dip FP, CFP, SSA
Authorised Representative No. 417236
Total Financial Solutions Australia Pty Ltd AFSL 224954
Find out more about, or get in touch with, Casey, here.
If you’ve racked up a hefty credit card bill over the past few months and you’re wondering if you should take up a balance transfer credit card, there’s a few things to consider.
Firstly, what is a balance transfer?
A balance transfer lets you take the balance you owe on an existing credit card and transfer it over to a new credit card.
How does that help?
Balance transfer offers often come with a special interest rate that lasts for a specific period of time. For example, a credit card provider might offer you 0% p.a. for 12 months on balances transferred. Why pay 20% p.a. in interest when paying off your credit card debt, when you can pay zero? That means more of your monthly payments can go towards paying off your debt, instead of going towards interest.
What’s the downside? Is it really reducing my debt?
As with all credit products, you need to pay attention to the specific conditions of each balance transfer offer. Here are some things to look out for if you’re looking to reduce your debt:
- Some credit card providers will charge an upfront balance transfer fee, usually 1-3% of the balance you’re transferring.
- The special interest rate you receive from a balance transfer offer only lasts for a period of time, often ranging from 5 to 24 months. If you haven’t paid off your balance by the end of this honeymoon period, your interest rate will revert to a higher rate.
- If you start spending with your new balance transfer card, you will start incurring interest on these purchases from day one as you will already have a balance outstanding and won’t be able to take advantage of any interest free days. This means you could end up worsening your debt situation if you’re not careful.
- There are usually minimum and maximum amounts that a credit card provider will allow you to transfer to a new card and they usually require that your balance is transferred from a different credit provider.
- Keep in mind that making too many applications for credit can hurt your credit score, regardless of whether your application is approved or declined. (If you don’t know your credit score, our partners Credit Savvy can help you check it for free here).
So before applying for a balance transfer card, make sure you’ve done the sums, read the policy and check that it meets your requirements before applying!
There has been a lot of discussion in the media recently about volatility in global share markets, however the fact is that periods of market volatility are a fairly normal part of the investment cycle.
While it might seem a strange idea at first, risk is an essential part of investing; it’s simply the chance that what a particular investment actually earned (the return), could be less or more than expected.
A low-risk investment can provide the comfort of greater certainty of achieving its targeted return, while higher levels of uncertainty about how an investment will perform, generally means that an investment carries higher risk.
Risk and return
Generally, lower-risk investments are associated with lower returns, while higher-risk investments give the possibility of higher returns.
However, there are no guarantees when it comes to investing. While everyone would like higher returns, not everyone can handle the uncertainty that may come with a riskier investment.
How prepared you are to accept changes in your investment returns — including potential losses — will help you understand what’s known as your risk profile, or tolerance.
How much risk are you comfortable with?
Everyone’s risk tolerance is different depending on their own personal circumstances and mindset, so think about your risk tolerance before you make your investment choice. Are you the kind of person to lie awake at night worrying about a downturn in the market, or you can comfortably live with some market fluctuation?
So how can you work out your risk profile? Well many super funds provide an online risk profiler or calculator that make is super easy to work out.
These risk profilers can help you to clarify your:
- investment goals and timeframe
- experience level as an investor
- tolerance of a potential short-term fall in the value of your investments
Based on your answers to these questions, the profilers typically will also indicate your investor type.
These investor types can include:
- Cautious — typically invests over a shorter timeframe (three years or less), seeks lower-risk investments and, in exchange, is willing to accept lower returns
- Assertive — generally invests over a five years + timeframe, is prepared to accept some short-term changes in returns, or moderate risk, as seeking slightly higher returns than a cautious investor
- Aggressive — invests over longer-term (10 years or more), more comfortable with short-term fluctuations in investment performance, as aiming for higher long-term returns.
Super funds will typically match the investment options they offer to an investor type, so you can more easily see which option might better suit your personal circumstances.
Before changing your investment strategy, it’s worth considering getting advice. HESTA members can access advice — including about their investment strategy — at no extra cost.
It’s worth checking with your super fund about what advice they offer. Having a chat to a super expert at your fund can be a great way to get to know more about your investments and what type of investor you are.
Issued by H.E.S.T. Australia Ltd ABN 66 006 818 695 AFSL 235249, the Trustee of Health Employees Superannuation Trust Australia (HESTA) ABN 64 971 749 321. This information is of a general nature. It does not take into account your objectives, financial situation or specific needs so you should look at your own financial position and requirements before making a decision. You may wish to consult an adviser when doing this. For more information, call 1800 813 327 or visit hesta.com.au for a copy of a Product Disclosure Statement which should be considered when making a decision about HESTA products.
Did you know Australians are over $200 billion ahead in their home loan repayments? Over 70% of home loan payers are actually ahead in their repayments and are in fact more than two years ahead of schedule.
It is often not one reason as to why they are ahead but rather a number of little ways that people accelerate their repayments. Here’s some tips so that you too can get on the accelerated home loan wagon and pay off your home loan sooner …. after all, every little bit counts and better in your pocket than the banks!
- Shop Around. If you have an owner occupied property, now is the time to really negotiate a fabulous deal. There are plenty of lenders who are offering variable and fixed rates for under 4%. They key to this though, in order to pay your home loan quicker, when you do refinance is to keep repayments at the original level. As tempting as it may be to have more money in your wallet every month, by having the same repayment at a lower rate, there is more of your repayment actually paying of the principal and not just going towards interest.
- Pay Fortnightly. Paying fortnightly can save you 5-6 years off your home loan. That’s right, years. There are 12 months of the year but there are 26 fortnights. By paying fortnightly you are in effect paying 13 months off your home loan every year. The savings over the life of the loan is between $40,000 – $50,000!
- Pay an extra $10 / week extra off your home loan. On a $500,000 home loan and at a rate of 4.5% by paying just $10 / week extra, you can shave 12 months off your home loan and save you just over $15,000 in interest.
- Don’t reduce your home loan repayment when the RBA reduces the cash rate. If you maintain your repayment at the original level when your loan commenced it has two positive effects on your home loan. Firstly, you are paying off more principal on your home loan but secondly when rates actually rise again, you will not notice any repayment increase or pain. For example: If your $500,000 home loan 3 years ago was 5.5% with a repayment of $2,839 (interest component is $2,292) and if your rate is now 4.09% the interest component has reduced to $1,704. By maintaining the $2,839 repayment, you will then be paying off $1,135 / month off your home loan. If you paid an extra $1,135 / month off your home loan every month form year three for the life of the loan, you would save a whopping 12 years off your mortgage and $150,000 in interest alone!
- Use an offset account to reduce the interest you pay. Interest is calculated daily and charged monthly. For every single day that you have money sitting in your offset account you are reducing the interest you pay. This requires a little more discipline – no impulsive spending allowed here! If you have $10,000 in your offset account you could be saving yourself just over $30 / month in interest on a $500,000 home loan. $30 / month extra in repayments is a further 8 months off your home loan and $9,280 interest savings.
A combination of a few little things can certainly help you achieve greatness. See what you can do to get your home loan down!
Do you feel like you’ve got a handle on the basics of budgeting and now want to get savvy with your money. Really savvy? Like, investing in stocks and shares, savvy? Not sure quite where to start? Well, you’re not alone!
This is our Beginners Guide to stocks and shares for those of you who are ready to take that leap into this whole new world.
This video explains the basics behind investing in shares. Our ASX experts share insights into when, why and how you might use shares to form part of a diversified investment portfolio, where to find further information and what to look out for.
What are shares?
When you buy shares in a company, you are buying a part of that company. This means you share in the company’s performance in the form of profits which can be given to you as dividends and/or capital growth through the value of your shares increasing. Companies generally list on the stock exchange to raise capital for their company and to create a market in their shares. Companies you invest in benefit by using your money and that of other investors to finance their business or its expansion, without having to borrow money.
Shares are an important part of an investment strategy. Being good at investing in shares is about being informed, monitoring your share’s performance on a regular basis, keeping an eye on your goals and investment strategy and participating in ongoing education as you need it. Shares may also be referred to as stocks, securities or equities.
What are the Risks and Benefits?
Investing in shares will make you part-owner of a business. Shares can be a sound long-term investment to build wealth over time but are very risky to use in the hope of making a quick buck.
Before you invest in shares, you should understand the benefits and risks, think carefully about your options and seek financial advice before you enter the market.
The benefits of investing in shares are:
- Potential capital gains from owning an asset that can grow in value over time
- Potential income from dividends
- Lower tax rates on long-term capital gains
The risks of investing in shares are:
- Share prices for a company can fall dramatically, even to zero
- If the company goes broke, you are the last in line to be paid, so you may not get your money back
- The value of your shares will go up and down from month to month, and the dividend may vary
Can I Borrow To Invest In Shares? Margin Loans Explained
A margin loan allows you to borrow money to invest. The margin loan is secured against the investment you make with it and/or other investments you have. You’re not allowed to borrow the full amount of your investments but just a percentage called the LVR – Loan to value ratio. This is usually between 30% and 70% of the value of your investment in shares or managed funds.
Using a margin loan, or borrowing to invest, can be a very effective strategy to build your wealth, but it’s not for everyone. You need to have excess income, be a savvy investor and happy to take risks. Because you’ve more money to invest, your investment gets a ‘turbo boost’ and gains are magnified. But if your investment loses money, losses are magnified too. Not only have you made a loss but you still have to pay back the loan. Be aware of borrowing to invest in a volatile share market environment, get financial advice and have a strategy in place for meeting a margin call.
Flick through the ASX Investing in Shares Booklet. With a friend or in your GIG or online Money Makeover group, discuss shares. Use the points below as conversation sparks.
Approach – how and where to start
- How much is a minimum amount needed to start investing in shares?
- What online trading platforms exist? How do they work? eg. CommSec, E-E*trade, nabtrade…
- What is trading? What kinds of trading is there? eg. define ‘day trading’, ‘options trading’
- What is the difference between ‘trading’ and ‘investing?’
- When is a good time to invest in shares?
- How much does it cost to start? Online fees, full service brokerage fees
- Why would you sell?
Discuss the following terms:
- International vs Australian shares
- Employee buy-in schemes
- Reinvesting dividends (pros, cons, how to’s)
- ‘Set and forget’
What does a share trading success story look like? Think about good and bad attitudes and behaviours.
Want to learn more about ethical investing? Click here for a guide.
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RESOURCES & REFERENCES
We all know the benefits of goal setting – focus, clarity and hopefully, success.
Yet the real benefits of setting financial goals go well beyond the increased chance of achieving them.
Benefit #1: Helps to Review Your Here and Now.
The first thing that financial goal setting does is allow us to review where we are now.
Many of us feel uncomfortable, apathetic or not in control of our financial affairs. When this happens we tend to avoid opening the bank statements or reading the pay slip. When we set a financial goal around debt repayment or saving for a particular item, it gives us an added incentive to get to grips with what we earn, what we spend, what we have and what we owe. This process also tends to highlight to us what we don’t know and give us the opportunity to fill in some gaps. When it comes to finances information is power.
Benefit #2: Focusing on your Priorities
The second benefit is about focusing on our priorities. Few of us have simple wants and desires. Chances are you want to work less, earn more, have more, owe less, be carefree spending more today and have peace of mind that you’ll have everything you need tomorrow.
The act of goal setting gives us the opportunity to be realistic about we can achieve and to prioritise those wants and needs.
When you are feeling overwhelmed one of the most powerful things you can do is take a paper and pencil and write down everything you want. You write and write and write until there is no room left, until you can’t squeeze anything more from your head and onto the paper. By seeing these things written down, you have a visual representation of the hidden expectations you carry around. You can then acknowledge that it’s not realistic to have them all, or to have them all now. What you can do is pick one or two of the most important wants and work towards those. Focusing on a couple of goals instead of a lengthy list will make you more likely to achieve them and reduce the chance of getting discouraged and giving up.
Benefit #3: Managing Regret
The third benefit of goals is about managing regret. When you pursue one goal, chances are you are giving up (or delaying) the opportunity to achieve another. You’ve decided to focus on getting out of debt and that has meant you’ve said no to the weekend away with your girlfriends. Or you’ve decided to further your career prospect through further training, but that’s delayed your ability to save for your deposit. We will always get moments of regret and longing for things we wish we had done or not done. But knowing that your choices are furthering your chosen financial goals will help you deal with the downside.
Benefit #4: Learn New Skills
The fourth benefit are the invaluable skills, knowledge and habits you gain, that will percolate throughout other aspects of your life. The experience of negotiating with your bank to consolidate your credit card debt might come in handy when having to raise difficult conversations at work. Getting your superannuation sorted by understanding fees and investment options may help you be more confident and informed when going to apply for a home loan.
The act of budgeting and managing your spending may make you more mindful of social justice issues as well as the environment impacts of consumption.
The final word goes to Henry David Thoreau, an American author and philosopher of the 1800s who shared with us this wisdom:
‘What you get by achieving your goals is not as important as what you become by achieving your goals.’
About Rhiannon Robinson:
Let us Help You Transform your Finances!
Hi, My name is Veronica! I am a happy mama of three, a freelance voice and performance coach, a small business owner and now debt free and well on our way to saving for our first property.
My husband and I welcomed our lovely children in our early 20’s, and being young meant that our careers were yet to blossom, we lacked the discipline it takes to grow financially and needless to say, we hadn’t a clue how to budget! We were limited financially and ideally, my husband and I should have taken on full time jobs in order to support our family. But I had dreams of the kind of parent I wanted to be. I wanted to earn a living without compromising the time I wanted to spend raising my young ones and the same went for my husband. Simply put, we wanted to be there while our children were small and this took priority over securing our careers. We knew that in order to maintain that lifestyle, we had to work as freelance parents.
I was working and studying as a singer and musician and instantly fell in love with teaching. This worked very well for me, not only because I loved it, but also because I was able to work from home, often after bedtimes or at nap times. Over 11 years, I have since grown my home studio into a small business in Canada Bay, with four teaching staff and a small musical community of over 100 students. I now earn a passive income on top of my freelance work, which is wonderful, and the feeling of contributing to the young people around my community is priceless. However the path to get here has not been easy. Raising small children on two freelance incomes in Sydney was a week-to-week ordeal. We were using credit to live, paying things off when we could, only to use it again when a ‘big bill’ would come in the mail. This really spiralled us into a pretty dark place financially, which was not too friendly on our marriage to say the least! I do believe in hindsight that the more in debt we got into, the more nonchalant we became with our spending. Getting out of debt was not a priority however I also knew deep down that our financial worries would be temporary. Children grow, start school, and with that, I knew I would have more time available to work and when that time did come, our finances became a lot more stable.
# 1: Treat your debt with a positive mindset and with gratitude
This is a concept I learned from financial author/motivator, Suze Orman. It was not until I wrapped my head around the concept of respecting money and treating our debts with respect that our debt started to decrease. I think that for young families, money is sentimental. It means nourishment for our children, warm clothes, a trip to the zoo. I began to ‘thank’ the money that would come in, no matter how small. If I found a five cent piece on the floor, I thanked it. I changed our banking password to words of gratitude. I wrote ‘Thank you for this money’ on the underside of my wallet. I also wrote a huge ‘thank you for our debts’ manifesto and stuck it to my dresser in order to remind me that this borrowed money saved our family out of some desperate situations (and one overseas holiday, which we thoroughly, guiltfully enjoyed!). These were a constant reminder to switch my mindset from ‘Ugh, not another credit card bill, blegh!’ to ‘This money is precious, this money represents hours of work and resources, a roof over our heads, a warm blanket in winter, a memorable family event…’.
This is the single most powerful thing we did to change our financial outlook for the better, hands down. When you learn to respect money, treat it like you would a good friend, it returns the favour! When you respect that your debts are there because a little plastic card came to your rescue during a tough period in your life, it makes it easier to be humble, to stop treating debt with such negativity and to switch your mindset to one of gratitude. It is so much easier to get on with the task of getting rid of the debt when it is not such an emotional chore to do so.
# 2: Make more money
It is very difficult (impossible) to get out of debt when there isn’t enough surplus to increase your minimum payments. We worked very hard to increase our freelance income and set our careers towards a brighter trajectory. My husband worked overtime, while I worked every available moment on my business. I saw clients during school hours, after bed time hours and Saturdays, and worked on my business presence and admin late at night. I also loved making extra (tax-free!) income by selling things on eBay and having frequent garage sales. When you treat it like a game, it can be a ton of fun! There are many avenues to make extra money. I wish that fiverr.com or Airtasker were around a few years ago, as I most definitely would have used those websites to drum up extra cash!
# 3: Decrease spending
What we’ve learned is that with some preparation and organisation, decreasing spending is actually very easy.
- Food is the biggest expense for a family, so learning how to cook nice meals, stocking a freezer and eating healthily means less expensive packaged food (and is better for you too). Making menu plans and freezing food after a cook up with the kids saves hundreds of dollars a month and is a great way to spend time with young children.
- Holding BBQ’s with friends at home instead of going out.
- Shopped (and still shop) at Aldi and fresh food/fruit markets as much as we could…you really notice a difference in price!
- Negotiated our credit card interest rates down and calling them often to bargain them down even more.
- Use a pre-paid phone sim (Amaysim is the cheapest and the best!)
- Buying second hand where we can (having a love of vintage old things helps!)
- I also make my own ‘cheapskates.com’ laundry powder!
- Use very cheap and simple cleaning items such as vinegar, baking soda, lavender and dish liquid.
# 4: Have a money date
As a couple, we changed the way we discussed about money (see #1), and now at every ‘pay day’, we pour a glass of red, sit in front of the telly, and casually chat about where our money is going that week. I vowed to make it simple and easy. Sometimes the candles even come out! It makes the chore of discussing money into something special. Having a money date is so important as it means we can keep a close eye on where funds are going but also celebrate each time we paid a chunk off our debts. As our statements became smaller and smaller, our money dates became a lot more fun and our confidence and excitement grew, but at the beginning it was not easy and if other couples are in the same predicament, expect a few bad nights (more wine!). It is not nice seeing a chunk of your hard earned money go towards debt, however, remind yourself that when in debt, there are only two choices: Pay it off now, or keep paying forever. They are two sources of pain, yes, but at least one has a happy ending! It won’t disappear on its own!
# 5: Budget to zero and use cash for general living expenses
We have a very conservative budget and take all of our general living expenses (such as groceries, petrol and fun money) out in cash. No cash, means no spending! We then allocate the remaining funds into a high interest savings account (at the moment, RAMS have a very good high interest savings account) and other bills are paid online until there is zero left. Our electricity and gas bills are paid in increments every week, so that we never have to pay a large bill. When we were in debt, what now goes into savings went to our debt, where we paid off the highest interest rate debt first, and then ‘snowballed’ to the next debt. Anytime we had a windfall (such as a tax refund or a big eBay clear out!), we would use the money towards debt. After two years, we paid off 4 credit cards, one personal loan and one car loan!
# 6: Read books and blogs about finance and/or business
Getting educated about money is inspiring, motivating and just makes sense. Unfortunately, being financially responsible is not a skill you learn at school! There are so many tips and tricks from people that I have picked up along the way. Obviously, 10thousandgirl is a blog to trawl through! Suze Orman’s ‘The courage to be rich’ was a game changer for me. We are now able to finally plan our future and are vigorously saving, which is quite easy as we’re so used to living within a small budget. Although we’re no longer as strict on our budget (we allow the odd un-budgeted spend and do it guilt free). We hope to purchase our first property within the next 12 months, expand my business even further within the next 3 years and are now able to plan for our future without a large debt to hold us back. It is worth every ounce of discipline and hard work!
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Preparing a budget can help you get on track to reach your financial goals. Knowing you’re spending within your limits can also remove a lot of stress from your life. Being in control means you can enjoy that occasional splurge without the guilt.
So, how do you get your budget in order?
- Gather your financial records for an entire year. It’s best to look at the whole year since expenses and income can vary a lot. Helpful documents can include bank statements, credit card bills, mobile bills and payroll documents.
- Find a tool to use. You can create a simple spreadsheet, or have a look at some of the budget tools on websites like Moneysmart.gov.au.
- Start with income: include all the money you’ve been paid over the past 12 months to understand your annual earnings.
- Add up all of your expenses by category: housing expenses, insurance, taxes, groceries, going out, shopping, petrol and commuting, medical, children, vacations and any other major categories. Using categories makes it easier to see the patterns.
- Estimate what you’ll earn over the next 12 months by month based on the past year, and by thinking about any changes such as raises or changes in hours.
- Project your expenses honestly for each month. Don’t assume you’ll spend less than in the past less unless you have a clear way to make that happen.
- Subtract expenses from income to look at your net inflow or outflow for each of the next 12 months. From that, set yourself a reasonable, achievable savings goal for each month. Write this down at the bottom for each month!
- Print out your budget and keep it in a safe place. At the end of each month, take a look and compare to reality. If you’ve reach your savings goal, give youself a major high-five! If it’s not working the way it should, set yourself some specific goals to change your behaviour and spending and get back on track the next month.
Budgeting is not about putting a noose around your neck, it’s about putting you in control of your finances, understanding your financial position at all times to ensure you are making informed decisions.
Modern life can be overwhelming so when it comes to making a financial plan many of us simply can’t find the time to sit down and go through it; and when we do, we’re not really sure where to even start!
Finding the time to sit down and do a budget is vital to ensuring peace of mind around your future.
The budgeting process is valuable as it will allow you to separate your income into various areas. Many years ago our Grandparents allocated their weekly earnings into various jars or envelopes and only spent the remainder on food and little luxury items, this ensured all bills were paid on time.
Any good budget and planning starts with having a crystal clear understanding of your income and expenses. This is vital because you know then the amount of surplus you have to work with to direct towards future planning. The process of understanding incoming and outgoing money is that you can see, clear as day, the areas that need your attention and reviewing.
Warning Signs you Need to Start Budgeting
If you use credit cards and are not able to clear the balance every month than this is a clear indication that you are spending more than what you are earning, you should cut up your credit card to eliminate temptation.
Do you have debts/loans are you able to make extra repayments, clearing the debt in a shorter time frame and saving yourself thousands of dollars, or are you overdue in repayments?
These are clear warning signs that you are not managing your finances well.
Budget Set-Up and Monitoring
Budgets are best managed in excel spreadsheets to easily enable changes. There are also many online tools and apps available; Google ‘Free Personal Budgets’ and choose one you are comfortable using.
Here’s an example of a double income household and their budget. No matter your circumstances, the same concepts apply.
The Jones’ receive a combined Net Income of $3,500 fortnightly
Step 1: Allocate your income into various accounts. All commitments need to be allocated and funded prior to any discretionary spending.
- Mortgage $1,200
- Credit card debt $150
- Bills account $600
- Christmas club account $50
- Super $400
- School fees $190
- Weekly expenses $650
- + Savings $260.
Step 2: Use different accounts/direct debits and pay bills
Separate money into various accounts will make budgeting easier, set up direct debits and periodical payments and pay all bills automatically. If you structure your cash flow correctly you will only need to worry about your weekly expense amount, this account funds food, petrol, birthdays and clothes.
Any item that you can do without or reduce, you will find you will make more conscious decisions regarding purchases. Saying no to a few more smaller items will ensure you have savings for emergencies, holidays and luxury items.
Step 3: Consider Your Future
Budgeting will give you a good indication of what you need in your retirement so that you can enjoy a similar standard of living as today. The government site, Money Smart, has a retirement planning calculator to help you work this out.
Step 4: Is your Super really Super?
Planning for your future means keeping a close eye on your Superannuation account. Ask yourself these questions to ensure that it is on track and working hard for you:
- Do you know what your current super balance is?
- How often do you check it to find out how much your balance is growing?
- How are your funds invested?
- Is this in line with the amount of volatility you feel comfortable with?
- How has your superfund performed?
- Have you considered whether the type of fund you have is the right one for you?
- Do you have the ability to choose a super fund of your own choice or did you go with the default fund as it was too hard at the time?
- Do you have more than one super fund?
It is important to keep track of how your fund is performing so that you know whether you are on track to achieve your financial goals.
If you are not managing your finances well and are not aware of how your super is performing or what your options are than alarm bells should be ringing!
Step 5: Get Help if you Need it!
If you are not a financial whiz than it is a good idea to seek the advice and guidance of a Trusted Financial Adviser, who has a wealth of information and experience. They can help you with managing your cash flow and implement a financial strategy to help you achieve your financial goals and then ensure that it is managed and reviewed regularly.
It’s never too late to start getting financially healthy, your future self will thank you for it.
Find out more about Christine, here.
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