New financial year resolutions to ditch debt and spruce up your savings

It’s no secret the pandemic has inspired many Australians to embrace healthier money habits. But with half of 2021 already flown by and a new financial year upon us, now is a great time to check up on your finances, whether that’s your savings or credit card spending.

Start by committing to at least one new financial year resolution. Having money goals to work towards could give you more direction in terms of the right ways to manage your finances and put more dollars into your pocket.

Read on for Mozo’s top resolutions to add to your list…

1. Build up your emergency cash stash 

Mozo research last year found that only 25% of Australians had the savings to cope with a crisis, with half of all the working households surveyed saying they  had less than $7,000 in their bank account.

These are alarming figures, especially in times of uncertainty. Whether it’s a job loss or an unexpected medical bill, you’ll want to be ready financially for any disruptions that come your way. This is where an emergency savings fund comes in - a dedicated money bundle to cover any unforeseen, urgent and essential costs.

The rule-of-thumb for an emergency fund is to stash away enough to cover your everyday expenses (e.g. rent or mortgage repayments, energy bills, groceries) for at least three months. Mozo calculations previously estimated this three-month safety net could sit anywhere between $7,000 to $10,000, depending on where you live in Australia.

So if you haven’t already, set yourself an emergency savings fund target and chip in a set portion of your income every pay cycle. Remember that the money should only be used for a rainy day, so to avoid temptation, it may help to keep the cash in its own separate savings account.

2. Revise your budget - and stick to it

Has your financial position changed since you last wrote your budget? Do you now spend more on your energy bills but less on train fares or petrol due to work-from-home arrangements? Then it may be time to revamp your budget.

Start by checking if your budget is on track… or veering down windy roads it shouldn’t. There are plenty of ways to cut down expenses, whether it’s cancelling subscriptions you rarely use or limiting your online shopping.

The trick to sticking to a budget is to keep it realistic. One strategy for dividing up your income is known as the ‘50/20/30’ rule:

  • 50% for essentials - rent, transport, utilities, paying off debt
  • 20% for personal saving
  • 30% for fun - eating out, shopping, hobbies, entertainment.

Just be mindful these percentages are more of a guideline than a rule; for instance, if your finances are tighter than usual, you may have to reduce your ‘fun’ portion in order to cover the cost of necessities. Read our guide on how to budget during a crisis.

3. Save more on the essentials

If you’re looking to save even more this financial year, then you shouldn’t stop at giving up on Netflix or your gym membership. Investigate your bigger recurring bills such as electricity and car insurance too.

While these are expenses you can’t live without, there is a way to reduce their impact on your wallet: by shopping around. Switching to a cheaper energy plan or car insurance policy that suits your situation could go a long way to helping you save hundreds, if not thousands of dollars.

For instance, if you’re currently on standard comprehensive car insurance but you’ve been spending much less time behind the wheel, consider whether you’re paying more than you need to. There is an alternative option - pay-as-you-drive insurance - which offers discounts to people who drive fewer kms.

4. Prioritise and pay off your debt

While a credit card can help you through a financial emergency, the flipside is that they could also send you down a rabbit hole of debt. As of April this year, Australia has a staggering $20 billion in credit card debt, according to the RBA Payments Statistics, which works out to be $1,590 of ‘debt’ per cardholder.*

If you’re one such Australian, then this new financial year could be an opportunity to pay it back on your own terms.

Devise a repayment plan and work it into your budget. If you have multiple debts, then consider prioritising them either according to the amount owed (starting with the smallest size) or interest rate (starting with the biggest killer). But remember to continue making minimum repayments on all your other debts, so you don’t get hit by late fees.

If you need some breathing space while working to clear your debt, then a balance transfer credit card could help. These cards allow you to transfer your outstanding balance over to a 0% introductory rate. The intro period can last from 5 to 36 months depending on the provider.

Just be wise about how you’re using balance transfer cards, as the revert rate can be high, so if you aren’t actively paying off debt during the intro period, you could find yourself back to where you started.

Ready to compare balance transfer offers? Check out our table below for a few competitive options:

5. Boost your credit score 

Kickstarting your home buying journey or looking to spruce up your living space with a renovation? These are dreams that many Australians have, but a less than spectacular credit score could stand in the way of you hitting those milestones.

That’s because any time you take a personal loan or a home loan, the bank or lender will take your credit history into consideration and use it to evaluate your risk. Luckily there are a few ways you could lift your credit score to its A+ game. 

Getting your hands on a copy of your credit report is the first step. In Australia, you can contact a number of credit reporting bodies to do this, with the main ones being Equifax, Experian and CheckYourCredit. Generally, you’re able to request a free copy of your report every 12 months.

Comb through your report to check for errors or listings you can contest - this might include inaccurate information that banks or lenders may have recorded. 

Finally, nothing damages your credit score like outstanding debts and bills, so be sure to pay them off (on time!). 

But if your credit history is a blank slate because you’ve never borrowed money before, it can again be hard to prove to lenders that you’re responsible with your finances. 

So here are some ways to start building your credit reputation this new financial year: 

  • Putting any utilities you pay in your own name, including electricity, gas or water bills  
  • Getting a postpaid mobile plan
  • Applying for a low interest credit card - but remember to be punctual with all your repayments and pay off your balance in full every month to avoid accumulating debt. 

So what are you waiting for? It’s time to write out those new financial year resolutions and get started!

*Bear in mind this amount is artificially low because it’s spread across all cardholders but not all cardholders have accruing debt.