As the new year rolls in, we’ve had many clients approach us with their “New Year Finance Resolutions” and queries on how to achieve these resolutions; which include saving more, investing, and increasing overall wealth. We’ve decided to compile a list of tips and tricks to help answer those burning questions, along with some overall tips to help you manage your finances in 2015.
1. Do a house hold budget
Don’t groan. Put the kids to bed, clear the table, get out all your credit card and bank statements (pour a glass of wine if it helps) and put that pen to paper. You’ll be surprised when it’s written down where your money comes from and where it goes and how obvious some changes will be.
List all your expenses and all your income and remember...be honest! Split the expenses into fixed costs (rent, mortgage repayments, electricity etc) and discretionary costs (entertainment, gym membership, dining out etc). There’s not much you can do about fixed costs but start cutting those discretionary costs and see the savings pile up.
2. Pay off debt
All savings should be used to pay down debt. It just makes sense. Furthermore, you should take into consideration the different percent rates you are paying. For example, why earn 4 percent on a term deposit and pay tax on that interest when you’re paying 7 per cent on a home loan and 20 per cent on an outstanding credit card balance? If you need access to emergency money, most home loans offer a drawdown facility on those extra repayments.
3. Choose the right credit card
If you have or need a credit card, make sure you choose the right one to suit your needs and, ideally, reduce costs. For those who generally have an outstanding balance which they can’t fully pay off on time, credit cards with a low interest rate and no interest free period are best suited. For those who religiously pay their balance off on time, choose a credit card with a 55 day interest free period, even if it has a higher interest rate, because you’ll always pay it off.
Many people believe if they pay the minimum monthly balance then they’ve at least paid off the interest, but the banks can be decisively sneaky and reduced the minimum payment amount so that it doesn’t even cover the interest; which then subsequently puts you further into debt.
4. Make sure interest rate falls are passed on to your home loan
While increases in official interest rates are automatically passed on in higher monthly mortgage repayments, however interest rate falls are not – you have to ask for it. Ring the bank and make sure the savings on the monthly mortgage are passed through every time there’s a rate cut. But remember, if you can keep repayments at the higher level when interest rates are falling, you will save on interest and pay off your mortgage faster.
5. Watch your timing on paying bills
During tough times it’s all about managing your cash flow and that means making sure you pay household bills at the right time...not before. A lot of people pay bills the day they receive them which can be well before they’re really due. While this might be convenient it can cost you money. Rather than the money earning it’s interest in your bank account until it’s due to be paid, your money goes to the company which earns the additional interest for themselves; better in your pocket that theirs.
Australia post has a service called Billpay which is worth checking out; it allows bill payers to amalgamate payment of their household bills into one regular fortnightly or monthly payment.
6. Keep an emergency stash
Try and keep a couple of month’s salary in a safe place in case of emergency. You don’t want the financial stress if the car breaks down or if you’re retrenched.
But instead of keeping that little stash in a bank account where the interest earned in taxed at your marginal rate, put the money in your mortgage account. Just make sure it has a redraw facility and that the bank doesn’t have the discretion to freeze that redraw for any reason.
7. Check receipts and statements
We’ve all become a little slack when checking our bills, assuming that computers don’t make mistakes. Wrong! You’ll be stunned at how many mistakes can be made, so here are a few things you can do to double check those bills:
- Take a quick look over the grocery docket checking for double ups and amounts over $10.
- Keep receipts for your credit card purchases and compare them with every statement, making sure you check off purchases and keep an eye out for duplicate entries.
- Don’t be a big roller at restaurants and simply throw down your credit card when the bill arrives. Take the time to check it quickly to ensure the correct meals were ordered and that the prices match.
- Scan phone bills for any extra service charges and run your eye down the calls list looking for any abnormally high call costs.
- Always compare utility bills with the previous bill for any major discrepancies.
- Check bank statements for any extra fees and question them if necessary.
8. Consolidate debt
Managing your debt correctly is just as important as managing your savings. If you’ve amassed $5,000 or more in credit card or other unsecured debt, consider bundling it into a home-equity loan, assuming you are certain you can afford to pay down that loan. For example, on an unsecure debt balance of $10,000, you could save more than $2,000 in interest payments over five years if you consolidate it all into a home-equity loan which has much lower interest rates. BUT you must then pay that $10,000 off as quickly as possible; don’t just dump it in your home loan and forget about it.
9. Start a pay day saving ritual
Have the discipline to put a little money aside on a regular basis. Every pay day organise for 10 per cent of your salary to be automatically transferred into a separate savings account. It will happen every month without you knowing and with no fuss. Through the magic of compounding (earning interest on your interest) you’ll be amazed at how quickly the balance in your savings account will grow. The biggest mistake people make is to save what’s left over at the end of their pay cycle – there are just too many temptations along the way!
10. Manage your banking better
Most of us have a few different savings and transaction accounts, each of them attracting different levels of fees. It’s time to assess all these accounts which have built up over the years and see which ones are really needed. Banks typically impose fees on customers who allow their cheque accounts to fall below a minimum level. So if you have money sitting around in a bank savings account earning a low 1-3 per cent interest, the smart thing to do is to move enough of it into your cheque account to boost it above your bank’s minimum requirement.
Consolidate accounts for shift them to lower fee online accounts; transaction fees using internet banking are generally lower than physical accounts.
For more useful tips or if you have any further queries about improving your finances, contact us on 02 9299 7044 or via email@example.com.