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Getting your finances in order for 2021 – a how to guide
Promoted by Savvy
We don’t have to remind you how topsy-turvy 2020 was when it came to finances. Millions of Australians found themselves unemployment relief for the first time due to COVID-19 lockdowns, especially in Victoria.
Getting your finances in order for 2021 – a how to guide
Promoted by Savvy
We don’t have to remind you how topsy-turvy 2020 was when it came to finances. Millions of Australians found themselves unemployment relief for the first time due to COVID-19 lockdowns, especially in Victoria.
Others may have found themselves saving more with retail and eateries being closed. Some of us may have paid bills and other expenses with credit cards hoping that conditions would improve before too long.On the main, we’ve been paying off debt. According to TradingEconomics, household debt dropped 1% from 120 to 119% of GDP over the March quarter.
Whatever we did during 2020 will have an impact in 2021. If our finances are a bit out of control, now is the time to get on top of it; identifying weaknesses, unlocking savings, and building on your strengths.
Auditing what you have right now
If you want to win at anything, you need to start keeping score. If you genuinely wonder where all your money goes each pay period, you need to audit your personal finances.
The easiest way to audit your finances is to begin with a budget around major product or service areas. Utilities, transport, food, grooming, luxuries, going out, and other expenses such as paying off debts.
You can use your bank or credit union’s own NetBank app to help you find out where your money goes. Many apps let you categorise purchases. This may take a little set up to begin with (some apps let you categorise based on past behaviour) but will give you a good estimate of your incoming and outgoing cash.
Making wiser decisions
While you are reviewing all your expenses, see what kind of savings you can make by lowering costs. Many of our finances bleed out because they’re dying from a “death from a thousand small cuts.”
For example, if you are now working from home, there is less of a need for a large data contract with your telco provider. Downsizing to a smaller plan – say $20 instead of $50 – will save you $360 per year.
If you are finding you use Uber or ride-sharing often, figure out if that cost per month might be better invested into buying your own car instead. If you have a Pay TV or streaming subscription you don’t use, cut it off.
“If you’re looking at your expenses and can’t remember the last time you used a subscription or a recurring expense such as a gym membership, get rid of it,” says Savvy CEO and personal finance expert Bill Tsouvalas. “some of us spend for the sake of spending, and if we want to make a real go of getting our finances in order, we need to keep it on a tight leash.”
Consolidating your debts
One of the greatest examples of “dead money” is paying high interest, especially on credit cards. If you have one or two high-interest, high-balance credit cards that you are trying to chip away at.
Bill Tsouvalas recommends consolidating the debts using a personal loan. “Interest rates are at record lows right now and even an unsecured personal loan is highly competitive. It could save you thousands of dollars in interest and makes budgeting even easier in the short- to medium-term,” he says.
A consolidation loan is a personal loan taken out for the express purpose of paying off your credit card debts in one go. You then pay off the loan balance over a usual loan term (two to five years) until it reaches zero. “If you can stay away from credit cards in the meantime, you can save a lot of money.”
Invest in yourself
Saving for a rainy day and taking out loans for education or increasing opportunity is also something to consider. That could be for building your own business or buying a car to commute to higher paying jobs.
“With interest rates as low as they are, investing in yourself is as cheap as it’s ever going to get,” Tsouvalas says. “If you’ve followed the steps above, you should have a budget to work with and have more confidence as we head into 2021.”
When in doubt, always consult a licenced financial adviser.
This information is of a general nature and is not intended to provide you with financial advice or take into account your personal objectives, financial situation or needs. Before acting on the information, consider its appropriateness to your circumstances and read the financial services guide and relevant product disclosure statement available from licenced providers. You may wish to speak with a licensed financial adviser before making any major financial decision.
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