There’s a lot of noise out there when it comes to learning the financial basics and managing your personal finances. But sometimes it’s the simple, age-old advice that rings 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.
Here are some financial basics you can use as a foundation to building your personal finance plan.
Spend less than you make
This piece of advice is dead simple yet many people find it hard to follow. 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!).
Spending less than you earn is also key to building up your savings, which will not only serve as a relief during emergencies, but 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!
Build an emergency fund
Open a separate high interest savings account and set up automated payments to go through each month after you’ve been paid. You don’t have to start with a lot, the key is to save slowly but surely, so that you’ve got a nice reserve built up for when that rainy day inevitably comes. Some experts recommend anywhere between three to six 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 budget
Your budget is the cornerstone of your personal finances. Once you have one in place, you’ve got a clear path to your financial goals, rather than just hoping you’ll be able to save for that house one day. Start by reviewing your income, expenses and debts. The idea is to find out how much money you have left over after you’ve paid all of your expenses, so you know what you have left to put towards your financial goals like saving for retirement, your emergency fund and your vacation 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. 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.
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 required to put away 9% of every paycheque, however you may want to think about putting away 10 or 11% depending on how much you’ve saved to date. 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
Neglected many times but oh so important item of your personal finances – insurance is really a must. If you’re not properly insured, a job loss or house fire can send your life into a tailspin. 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.
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. Give one of our friendly team members a call on 1300 368 322. Financial freedom is closer than you think!