In planning for any year, you should start with the basics.
Research shows that 88% of Australians who make New Year’s resolutions don’t stick to them. Luckily for those who have nominated wealth goals for 2017, another study shows that financial resolutions seem to be easier to stick to. 42% of respondents said it was easier to pay down debt and save more for retirement than to lose weight or give up smoking.
Here’s a list of what I think should be financial priorities in 2017 and how to reach them.
It’s one of those things that everyone puts off. But a household budget is still the best foundation for financial wellbeing. When you spend less than you earn, you give yourself the potential for long term wealth creation. We all know that, but many find it hard in practice. Sit down with your bank statements from 2016 and take a good hard look at where the money is going. Then write a budget for 2017.
Focus on where you want to get to during 2017, commit it to paper, and then build a plan around it. Saving towards a house deposit, a major event or a holiday provides a powerful incentive and promotes confidence and self-sufficiency.
Part of goal-setting should be a savings plan of some sort. Whether it’s a holiday or a house deposit, set up a high-interest account that’s separate from your daily transactions and make a commitment to making deposits. Many regular deposits are usually better than large, irregular ones.
Your property is probably your largest asset and you owe it to yourself to ensure you have the best mortgage underpinning it. Ensure you are paying the lowest rate you can, and investigate other types of mortgages that might suit you better. For those who took out a home loan five years ago, the average rate after reductions would be 5.3 per cent. The potential savings on an average $350,000 loan with 25 years remaining could be thousands. For example, if you refinanced to a rate of 4.8 per cent, you would save $30,660 in interest over the remaining life of your loan.
Most people find it difficult to account for the cash they withdraw, as they don’t pay attention to every transaction they make. Creating self-awareness (after the shock of discovery) will go a long way to curbing wasteful spending. So, this year, limit yourself to just one cash withdrawal per week in the household and go through your bank statement every Sunday with your partner. These two easy actions suggestions will go further to achieving your goals than you may think.
Make a commitment to get your super sorted in 2017. Some people let it slide because they find it complex, but really, it’s just about setting a goal and ensuring that contributions and investment options support your goal. If in doubt, make 2016 the year you get a financial adviser.
List the top things in life you can’t do without. You may list things such as your health, your family, your home and your income – and for good reason. For instance, if you were injured in 2016 and unable to work, how would you and your family pay off your mortgage? Would you be at risk of losing your house? Too many people either ‘set and forget’ their insurances or don’t have adequate cover in place. I recommend you treat your insurance more like a phone contract. Check it annually and ask yourself, is it the best on the market? Is it still relevant to you and your family’s needs? Get a professional to revisit and investigate your insurances for you, to ensure their adequacy
Credit card crunch time:
18 per cent is not a good interest rate for a large balance. If you have more than one card, attack the one with the lowest balance and close it down. Then tackle the one with the highest interest. If you have only have one card make a weekly plan to pay it down, and reduce the limit wherever possible. If you have a mortgage, consider the possibility of refinancing and consolidating your cards into the mortgage.
Plan to pay at least an extra $5,000 off your home loan this year. How? Set up a weekly direct debit from your savings account (or even better, from your employer) for $100 direct to your home loan. By setting it up to occur automatically, it will ensure the payment occurs every week without you having to think about it and by the end of the year you would have paid an extra $5k off your loan by taking one simple action.
With the aid of the internet, just about everything you can buy has more than one price. Make sure you’re always paying the best price this year.
Good finances are a bit like sport. If you practice the right things, you develop good habits. And they’ll carry you through life.
Above all, remember that there are financial advisers and mortgage brokers out there who can assist you to achieve your financial goals. If in doubt over how to put into practice, your first port of call should be a suitably qualified professional.