Financial Planning Basics: Must-Have Personal Finance Tips

Topics: Reading time: 4 minutes

There’s a lot of noise out there when it comes to learning the financial basics and managing your personal finances. Sometimes it’s the simple, age-old advice that rings the truest. You don’t need to be a financial genius to manage your finances, nor do you need to shell out a lot of money for professional help.

If you know the basics of finance, you can do anything. Whether your goal is to save more money, prepare for the future, or pay down debt, we’ve got you covered. Here are some financial basics you can use as a foundation to build your personal finance plan.

Spend Less Than You Make

This piece of advice might be simple, but that doesn’t mean it’s easy to follow. Living within (or below) your means isn’t always simple when you’ve got expenses flying at you left, right and centre.

They key is to track all of your expenses over a few months time to see what you’re really spending your money on (don’t forget to include credit card purchases!). Using a personal finance budgeting app can help you do this automatically in just a few clicks.

Spending less than you earn is also key to building your savings. This will not only serve as a relief during emergencies, but also give you great peace of mind to know you’ve set money aside for life’s unexpected moments.

Pay Off Your Credit Cards Each Month

To avoid costly interest payments from accruing, you’ll want to pay off your credit cards each month. If you continue to carry over the balance, you could be paying more in interest than on the original purchase itself.

For example, according to ASIC’s Money Smart, “if you have $4,400 of credit card debt and only make the minimum repayments, it will take you 31 years to pay it off and cost you around $14,900 in interest.” That’s $10,500 more than the original debt!

If you’re not able to pay off your cards completely each month, still make an effort to pay over the minimum. Any payment is better than no payment, but aggressively paying down your debts when you can afford to will always pay off.

Build an Emergency Fund

What is an emergency fund? An emergency fund is a separate savings account that is put aside for unexpected expenses. You can think of it as a safety net for those last-minute expenses like when your car breaks down, you lose your job, and so on.

It’s impossible to know what the future will bring, so being prepared for anything is the best option. Without an emergency fund, you’re stuck draining your personal spending or taking on debt (ie. using a credit card) to cover these costs. That’s a slippery slope to financial troubles!

How do you build an emergency fund? To start, open a separate high interest savings account. Next, set up automated payments to go through each month after you’ve been paid. Some experts recommend having anywhere between 3 to 6 months of living expenses, but you don’t have to stop there. Consider depositing a smaller but consistent amount from your monthly savings into your emergency fund once you’ve reached your target goal.

Make a Monthly Budget

Your budget is the cornerstone of your personal finances. To make your budget, you’ll first need to review your income, expenses and debts. How do you allocate your spending each month? Do you have money left over after paying your expenses and debts? If not, your budget is in need of some adjustments.

Once you have a budget in place, you’ve got a clear path to your financial goals. Instead of hoping you’ll be able to save in the future, you can start saving in the present. You can start putting funds towards your financial goals like saving for retirement, your emergency fund and your holiday fund.

Pay Down Your Debt

Getting your debt under control should be one of your main priorities when it comes to managing your personal finances. All of that debt weighs you down and keeps you from contributing to your financial future.

One of the key basics of finance is to learn how to effectively pay down your debt. If you’re paying off a credit card, make sure to pay more than the minimum amount to save money on costly interest payments. The same goes for your mortgage and any other debts you may have. Soon, you’ll achieve your goals of being debt-free!

Save for Retirement

Have you thought about how much money you’d actually need to retire? Or at what age? It may seem far away but it’s never too soon to start planning for those golden years.

Australians are provided with 9.5% of superannuation with every payslip, however, you may want to think about putting away 10 or 11% depending on how much you’ve saved to date. Keeping your retirement savings in your finance toolbelt will ensure you’re on the right track for your future goals.

Have a look at your superannuation fund and calculate what you’d have at retirement age (it’s 65 currently, but will rise to 67 in 2023). This will give you a better idea of what you’re working with so you can start making adjustments for your future self.

Get Properly Insured

Though it’s easy to overlook, making sure you’re properly insured is an essential finance basic. Insurance is really a must. If you’re not properly insured, a job loss or house fire can send your life into a tailspin.

Aside from building an emergency fund, make sure you protect your finances with life, income and mortgage or renters’ insurance. This can sometimes be the difference between a small bump in the road and financial ruin.

Be Consistent With Your Finances

Consistency is your friend when it comes to finances. Once you’ve set up some healthy personal finance habits, make sure to do your best to stick with them. It’s perfectly normal to get off track every once in a while, but sticking with your plan over the long term will make a world of difference when it comes to your financial health.

If you’re having a hard time managing your finances, we’re here to help! Fill in the contact form below or give one of our friendly team members a call on 1300 368 322. Financial freedom is closer than you think!

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