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Happy New Year! I hope you were able to spend some quality time with your family and watching the Boxing Day test!
I always love this time of year as I get excited about the opportunities that the new year will bring, but it is also a good time to reflect on the year just gone and think about what we did well and what we could have done better. It is a great opportunity to ask ourselves what can we do better to make this year even better than last year, not just with Mastering your Money, but also with your overall lifestyle, friends/family, physical health and career.
In order to start the year off on the right foot, lets look at five financial resolutions to ensure that this will be your best financial year yet!
Resolution Number One: Review Your Budget
You will never be able to Master Your Money unless you have a budget in place. A budget is a itemised summary of what money is coming into your bank account and what money is going out. It should include everything from your annual bills to your daily coffee run and it should have a savings plan or buffer built into your budget.
Do you have any lump sum expenses planned for this year and if so how much money do you need to set aside each week to ensure you have enough money saved up for those expenses? A budget is a great way to ensure you always have sufficient funds for those expected and unexpected lump sum expenses.
Resolution Number Two: Pay Down Personal Debt
If you have any personal debt such as credit cards, personal loans or any debt that than an interest rate in excess of 10% you must make it your number one priority to ensure these debts are cleared as soon as possible. Australians have approximately $32.2 billion outstanding on their credit cards – this is one of the reasons why your Big Four banks still make exorbitant profits through your interest repayments. If you want to make this year your best financial year yet you must make it your priority to clear your personal debts – your wallet will thank you (but bank shareholders may not…)
Resolution Number Three: Save and Invest
Linking in with Resolutions One and Two, it is essential you write down all of the things you want to purchase over the next few years and create a plan to save for them, rather than make impulsive decisions to purchase these items on a credit card. These things may include:
If you have a couple of things listed down, firstly calculate how much it will cost, when do you need it buy and how much you need to save every week in order to save those funds. Then set aside in your budget that amount this week into a separate account for these expenses.
For example, if you have a goal of purchasing a house in five years time and need $50,000 for this, you need to set aside $200 per week for the next five years in order to achieve this.
I would also set up a buffer account (I call it the ‘oh ship’ account) for those unexpected expenses, regardless of whether you do or do not have some savings goals this year or not. Did you know that nearly a third of people would not be able to find $500 in an emergency? If you don’t have an ‘oh ship’ account set up, I would set setting aside as little as $30 per week into a separate account or make an additional repayments on your mortgage (which you can access with either an offset or redraw facility). You will then have $1,500 at the end of the year and being in a better financial situation than most of the country!
Resolution Number Four: Take Control Of Your Super
C’mon now, when was the last time you actually looked at how much was in your super? If you haven’t, don’t stress as a MoneySmart Poll recently suggested that over 40% of Australians have no idea how much they have in super, let alone how much they need going forward.
Did you know that in order to live a comfortable lifestyle in retirement now, a couple will need over $1 million in super (or similar investments) in order for them to live comfortably in retirement. If you are under 30, you will need approximately $3 million by the time you retire. Scary thought?
Don’t panic, there are things you can do every day such as utilising the Power of 30, consolidating your super and reviewing your investments which can make a huge difference in regards to the lifestyle you will live in retirement or not. Make this year the year you master your super. If super is something you find complicated, consider getting an independent advisor on your side who can assist you in making the right decisions from the comfort of your own home.
Resolution Number Five: Review Your ‘Plan B’
I still have not met anyone who has made a New Years Resolution for things to go wrong. We all make plans for things to go right, but unfortunately that is not often the case. The fact is there will be everyday (often young and healthy Australians) who will be unable to work for a long period of time due to an accident, injury or illness. It is important to have a discussion with an independent advisor about protecting your most important asset – you and your ability to earn an income.
On the flip side, I have met plenty of customers especially in their 50s who were unaware they were paying exorbitant insurance premiums in their super. I recently met a teacher (who had an industry super fund) who was paying over $15,000 per annum in insurance premiums, and had been for the last five years! Imagine if they had spoken to someone five years ago about this?
What do you have in place to protect you and your loved ones if things did go wrong? Seek independent advice about the various different covers there are out there. I would also strongly advise NOT having all of your insurances funded through super. If you are concerned that your insurance cover may not pay out, you can obtain superior cover for a similar cost you are currently paying for your mobile phone.