Want to kick start your finances for the year? Here are a few key ways you can take control and develop a path to achieve your money goals in 2020.
Tip 1: Calculate Your Net Worth
It’s always good before determining a path forward to step back and ask “where am I now”. The simple calculation of your new worth is a great starting point as it may highlight that you’re in better shape than expected, or uncover areas that require improved focus in the year ahead.
Start by listing all of your current assets – home, car, shares, managed funds, investment properties and superannuation. The value of your property can be determined by reviewing latest housing data, or reach out and we’ll send the latest RP Data report for your home.
Next list the money you owe, or your liabilities. This will include your mortgage, loans, credit card debts and any “buy now, pay later” services. If you are looking for a simple format to input the data, the following MoneySmart calculator may help.
At this point we hope the value of your assets is considerably higher than that of your liabilities. If not, then it’s time to follow the next five tips and highlights opportunities to improve your finances in the year ahead.
Tip 2: Review Your Spending
In today’s world it is easier than ever to spend money with tap and go payments, “buy now, pay later” as well as subscription payments for most services making it more difficult to keep across everything we spend.
If you want to get ahead financially, however, you will need to track and review your expenses frequently to know exactly where your money is going then prioritise how you spend. At this point the word “budget” is normally used, which stokes fear in most people as it seems to be linked to a form of loss of lifestyle. Instead, I prefer the terminology “spending plan”, as we need to spend to live and should look to spending more on those items we enjoy (with moderation) and less on those that provide low value, for example subscription services never used.
Tracking your spending is made easier today with technology, with many websites and budgeting apps available to assist in consolidating and categorising all of your spending in the one place. Our Wealth Portal also provides a platform where you can not only track spending, but also add all of your assets and liabilities to update your net worth in real time.
Tip 3: Set Goals and Save
What are you financial goals for this year? Make them specific, achievable and with reasonable time frames. Once you have your goals, create a plan for how you will achieve them. For example, if you want to save $5,000 by the end of the year, work out how much you will need save each time you get paid.
To develop a savings plan, start with essential costs like rent or mortgage, food, bills and transport, and then allocate money for any debts you need to pay off. Anything left over can go towards your money goals, ideally straight from your employer into a separate bank account that is difficult to access.
It is important to set some savings aside to help you reach your financial goals, but also to help cover costs that may arise in the case of an emergency. Set up an automatic recurring payment to transfer money into a high-interest savings account that is easy to deposit into but hard to withdraw.
Tip 4: Pay Off Your Debts
To get on top of your debt in 2020, break down what you owe into smaller amounts by prioritising what you can pay first.
One option is that you could start by making extra repayments on your smallest debt first and once you have paid that off, move on to the next smallest, and so on. If you start small, by the time you get to your biggest debts you will be well equipped to pay them quickly.
Tip 5: Review and Consolidate Your Super
The beginning of the year is a great time to review your super and make sure it is performing for you. If you are not covered by industrial agreements or defined benefit funds, then you can choose where your employer’s super contributions go.
When you choose a super fund, compare the following:
- Fees – the lower the better
- Investment options – make sure there are options that suit your needs and comfort with risk
- Extra benefits – your employer might pay more of you make extra contributions
- Performance – pick a fund that has performed well over the last 5 years
- Insurance – see what cover is available at what cost
- Service – call the fund or check their website to see what services they offer
Superannuation comparison websites can be helpful when you compare super funds, but you shouldn’t choose your super fund on the website rating alone. Two useful super comparison sites are Canstar and RateCity.
You can change super funds by filling out a rollover form from the ATO and sending it to your new fund or by logging on to your MyGov account. Visit the ATO’s keeping track of your super webpage for more information.
Tip 6: Review Your Insurances
You should make a habit to review your general insurances annually. Don’t leave it to the last day to renew – one in three people who shop around get a better deal.
Take 5 minutes to check if you are getting the best deal on your current insurance by getting a quote from another insurer to see what your premium would be through them. If the figures are similar, consider asking your current insurer for a better deal.
Before you renew your insurance, check if you need a different level of cover from last year. For example, has your house increased or decreased in value? Have you bought new white goods or an entertainment system? Weigh up the difference between having a high premium and low excess, versus a lower premium with a higher excess. Once you know the level of cover you need, move on to getting at least two more quotes before you compare premiums and choose an insurer. Look for any discounts offered for online renewals or applications and for paying the premium annually instead of monthly.
Life insurance protects you or your family from financial difficulty after an unexpected event, like an illness, injury or death. When you’re buying life insurance, take the time to understand the cost of the premiums, as well as what is (and isn’t) covered, and how your medical history might affect future claims.
Depending on your circumstances, you may need one or more of the following:
- Life cover – also known as ‘term life insurance’ or ‘death cover’, pays a set amount of money when you die. The money will go to the people you nominate as beneficiaries on your policy.
- Total and permanent disability (TPD) cover – pays a lump sum to help with rehabilitation and living costs if you are totally and permanently disabled. TPD is often sold with life cover.
- Trauma cover – provides cover if you are diagnosed with a certain illness that has a significant impact on your life, such as cancer or a stroke. It is sometimes called ‘critical illness cover’ or ‘recovery insurance’.
- Income protection – replaces some of your income if you are unable to work due to injury or sickness.
To make sure you choose the right insurance cover for your needs, it is a good idea to speak to an independent financial adviser or myself to understand what is included and excluded in each policy.
Start Planning Today
By putting a good plan in place for your money goals for 2020 and committing to it, you’ll not only achieve your goals, but you will set yourself on the path to financial freedom.
If you need advice on how to get started or would like further information on any of the above tips, contact me today.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.