By Bob Chen
If your New Year resolution was to get a better handle on your finances, our tips might be just what you need. Read on for Bob’s 8 step checklist for healthy finances…
Getting fit, starting healthy eating habits and getting your personal finances on track are among the New Year resolutions for many Australians. But, often, as the months pass by these resolutions are forgotten. However, if you made a resolution to improve your finances this year, our simple and practical tips may be just what you need.
1. Start with a budget
Get into the habit of maintaining a household budget. Spending more than you earn can quickly land you on the rollercoaster of debt, so make a promise to start living within your means. There is a budget planner calculator at amp.com.au/calculators which can help or we can provide a more personalised service for you.
2. Separate your ‘wants’ from your ‘needs’
Do you really need the $100 per month pay TV package? Or the latest model car? Knowing what suits your needs is key to managing your money better. Remember, it’s a trade-off between what you have today and your long-term wealth.
3. Use credit cards wisely
Interest rates on credit cards are sometimes as high as 20 per cent or more, so it’s important to pay off credit card debt quickly and within the interest-free period. To do this you will need to make more than the minimum repayments each month. Also consider rolling different credit card debts into one low-interest bearing loan facility.
4. Have an emergency fund
As a contingency for life’s unexpected expenses, it’s vital to have an emergency fund or access to cash through a mortgage redraw facility or offset account. Try to have at least three months’ salary in savings.
5. Get savvy with your super
AMP has introduced a simple service to consolidate your super online for free at amp.com.au/consolidate or you can also call 133 888. And consider topping up your superannuation through salary sacrifice. The benefit is in the compound interest. Lower income earners may also be eligible for the Government Co-contribution scheme.
6. Review your mortgage
An effective way to save interest on your home loan is to make extra repayments each month. The monthly repayment on a $300,000 mortgage over a 25-year term at 7.25 per cent is around $2,168. But you could pay off the loan 10 years earlier and save $158,277 in interest if you increased your monthly repayments by $575. You may also want to consider making fortnightly repayments as opposed to monthly repayments, as this may also save you interest in the long term.
7. Have a debt strategy
Pay off ‘bad’ debt like credit cards first, as they usually have the highest interest rates. As the interest rates on home loans are much lower than other loans, this type of debt should more aggressively reduced after your credit card and other high interest loans are under control.
8. Protect your family
Consider taking out life insurance and income protection through your superannuation. With changes in regulation, it’s now possible to obtain income protection insurance from some super funds until age 65, if cash flow is a problem.
To truly ensure that you get the best strategy to improve your financial position, call us today. We are qualified to provide you with the best advice to help you get your New Year off to a flying start, and ensure that it stays that way year in and year out.
What you need to know
This article contains general information only. It does not take into account your objectives, financial situation or needs. Please consider the appropriateness of the information in light of your personal circumstances. If you decide to purchase or vary a financial product, your financial planner, our practice, AMP Financial Planning and other companies within the AMP Group will receive fees and other benefits, which will be a percentage of the premium you pay and/or the advice fee you agree with us. Some of the information in this article is based on our interpretation of the law. It is a summary of the subject matter covered and is not intended to be comprehensive tax or financial advice. No reader should act on the basis of this article without obtaining specific professional advice. Further details are available from us or AMP Financial Planning Pty Limited on telephone 1300 157 173.
