The key to building financial security and wealth lies in small regular acts that over time create powerful outcomes. Adopting these money habits will set you on the right path to financial success.
Make savings automatic
Spending less than you earn is the basis for financial security and enables you to achieve your goals. From your budget, work out how much you can save from each pay check and have these funds automatically transferred to your savings account. Work towards saving 20 percent of your income and aim to put away three to six months’ worth of income in a high interest saver or mortgage offset account as an emergency fund The earlier you start saving the more time you have for the magic of compound interest to work for you.
Set a budget and control spending
Create a budget, review it regularly and stick to it. Your budget will show you how much you have left over to put towards your goals and if they’re achievable in your desired time frame. It’ll give you an honest account of where your hard-earned income is being spent and whether you are growing wealth (saving) or heading for disaster. Have a critical look at your spending and look for ways to reduce or eliminate unnecessary items. Remind yourself of your financial and lifestyle goals as a motivator to keep you on track.
Where would you like to be in five years? Maybe you’d like to save for school fees, a holiday or just have some debt paid off by the end of the year. Identifying your goals and the funds needed to achieve them is the starting point to make them a reality. Keep your goals achievable and review them often.
Break longer term goals into smaller, manageable chunks and don’t forget to include a few fun things too! Your goals should act as a motivator to empower you to say no when the urge to spend on impulse items comes along.
Avoid paying unnecessary interest. A debt of $10,000 on a standard credit card will cost you $2,024 per year in interest. That money could be going towards your future goals.
Put together a plan to pay off your debts. List your debts starting with the debt with the highest interest rate and finishing with the debt with the lowest interest rate. Put as much as you can towards paying off the card or loan with the highest interest rate, while still continuing to pay the minimum on the other debts. Once the first debt is paid off, move to the debt with the second highest rate and so on. Use any lump sums like tax refunds to reduce these debts even faster.
Invest in YOU
Think about your career path and where you would like to see yourself in five years. Maybe it’s a career change, or a higher position. Engage with your employer to see what options are available for advancement. Think about how you can actively improve your future income. Can you benefit from any personal development, further study or qualifications? Join a group to become more confident at public speaking. Investing in your future will pay dividends with higher job satisfaction and a higher income.
Invest your surplus
Once your debt is under control and you have your emergency fund in place, you may find that you have excess cash available to invest. This is when it’s helpful to get some advice on investments that suit your time frame and risk profile.
Prepare for the unexpected
Your financial security and future plans can unravel very quickly if you’re unable to work for a period of time. This is when your emergency fund will help pay the bills. Ensure the right insurances are in place. Income protection replaces lost income if you can’t work due to an accident or illness. Life cover, Total and Permanent Disability (TPD) and Trauma cover all provide a level of security for you and your family if the unexpected happens. If you aren’t sure what cover you need, speak to a financial adviser who will assess your position and provide recommendations on the right cover for you.
And no matter what your age, if you have assets you need a will.
Regularly shop around for better pricing
Even after you buy a home, pay attention to mortgage interest rates. Look out for refinancing opportunities that could save thousands of dollars over the life of a loan.
Review your insurance premiums and memberships. A regular review can ensure that your rates remain competitive and you get to pocket the savings.
Seek the guidance of a professional
Working with a financial adviser can take some of the stress out of managing your finances. A good adviser will keep you accountable to your budget, provide guidance to ensure you have enough insurance, have an estate plan in place and advise on the right investments. The financial world is complicated and often people do nothing when they’re faced with too many decisions. Working with an adviser can help you focus on what’s right for you and work with you to achieve your goals.
This information is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.