New Year - New Financial Resolutions
Not everyone is a financial wizz, so we’ve outlined some handy hints to make your pay cheque go further. It will take some effort, but you’ll be well rewarded for it.
1. Take control of your debt
If you are struggling with your debt, such as credit card debt, then your first action should be to contact your lender(s) and get your credit limit reduced, that way you can’t get further into debt. The second task is to consolidate any debts into a single facility and its essential it has an interest rate lower than your other facilities. This will usually involve opening a low cost credit card and transferring all your debt to this facility. Comparison site www.ratecity.com.au provides a handy way to find cheap loan (credit card, mortgage, personal loan) products, highlighting the low rate credit cards from Heritage Bank, ING Direct, CUA and ANZ as the most attractive, with rates of 11% to12%, around half the rate of a typical reward card. Once your finances have been consolidated, then you should NEVER pay the minimum balance, rather try to pay off as much of the balance as possible each month. Rewards cards are a wolf in disguise. If you don’t pay the balance in full each month, you should maintain a rewards card as the value of the point will be more than lost to the high interest paid on the loan balance.
2. Take control of your discretionary spending
One of the major issues faced by households is lack of ‘visibility’ on their spending, optimised in comments like “I don’t know where the money goes’. One reason for this is savvy strategies of banks and payment providers to speed up the payment process (its much faster to pay with a contactless card, watch or phone than with cash), so people don’t see the money leaving their purse or wallet. Visibility is further reduced by electronic rather than paper bank statements and digital payment apps like Afterpay and HUMM.
If you want to get on top of your finances and save more, you need to first understand where the money goes and this can be achieve by increasing visibility of you spending. To do this is not a 5-minute task, rather an exercise that is likely to take at least 2 hours to do properly. It is also ideal to use some sort of financial tool like a spreadsheet to keep track and instantly add up what is being spent and where.
If you are committed to doing this properly, you should keep track of spending for 3 months as this will balance out most peaks and troughs. If you do nearly all your spending electronically then you can look at 3 months of banks statements across ALL accounts. Make sure you include all credit cards, personal loans, hire purchase agreement and other accounts like ‘Afterpay’. If you use cash, then you should keep daily records of your withdrawals and in which categories the money was spend. If you are not confident in doing this then there are some handy apps that can do most of the hard work for you, these include: ‘Pocketbook’, which links to your bank account and ‘Good budget’.
One you’ve tracked your spending for a few months, you should be able to visualise your spending behaviour. You’ll have lots of scope to save by modifying your spending in discretionary categories and limited scope in non-discretionary categories, which are defined below.
- Non-discretionary categories have little opportunity for savings and include: rent, mortgage, car running costs, medical bills, eating in, utility bills, childcare and some insurances.
- Discretionary spending is where there are opportunities for saving, comprising: eating out, school lunches, going out, taxi’s, personal services like hairdresser, alcohol, holidays, personal electronics, presents, home furnishings/appliances, pet bills and subscriptions like gym membership, mobile phone plans, internet, Netflix and Spotify.
In theory you can cut out nearly all of you discretionary spending and still survive. We are not suggesting this, but discretionary items will provide you with focus as to where savings can be most easily achieved by small behaviour change, such as eating out less or perhaps buying less home electronics.
3. Manage your recurring costs
The other area to focus on is recurring costs, which are mostly subscriptions. Focussing first on the larger ones, you should
- If your recurring subscriptions are essential, then you should get confirm you are getting best value for money.
- To determine if you are getting best value for money, you need to compare the price you are paying with the best available, by reaching prices of alternatives. A lot can be saved by doing this, especially in areas such as health insurance, car insurance and even mobile phone plans. There are multiple sites making it easy to compare pricing of insurance policies, with better comparison sites being www.iselect.com.au and www.comparethemarket.com.au
4. Miscellaneous finance pitfalls
Be VERY careful not to purchase extended warranty protection for goods like electronics, motor vehicles or household white goods. Terms and conditions on these policies mean they almost never pay out, rendering them a waste of money. The policies offer so little protection to consumer. The reason the salesperson so aggressively pushes extended warranty insurance is the huge commission they get for selling these worthless policies.
Health insurance in Australia isn’t really health insurance, rather its largely only hospital insurance with most people shocked by the ‘gap’ between their cover and their medical fees. Unless you plan to spend a lot of time in hospital you should get the policy with the least extra’s, otherwise you’ll be paying a large premium for very little benefit.
Lotto tickets, instant ‘scratchies’ and the pokies are a very expensive form of entertainment and sure-fire way to lose money quickly. Guaranteed you will lose 20% to 30% of every dollar you hand over. Better to put the money in the bank and you’ll get better entertainment at a sporting event or the cinema.
Beware advertisements promoting high yielding investments. The reason they are high yielding is they are too high a risk for the banks to touch, which is good reason for you to avoid.
There is VERY little proof that a “reputable get rich quick scheme”, especially those linked to property ownership or shares, will make you money. The person who gets nearly all the benefit is the presenter or their firm. While we all like a shortcut to financial security, the reality is it’s a hard slog in most instance
Christmas and new year celebrations have come and gone and many nurses - like many others - will be dreading the arrival of the next credit card statement to assess the damage. While, itÕs too late to reverse last yearÕs financial misdemeanours, itÕs not too late to make smart and often small changes to your finances that will make a big difference to your personal finances going forward.