Friday, 19 January 2018
Posted by Tom Watson
If thinking about your finances tends to stress you out, it’s never too late to ditch those bad habits which have been holding you back by starting 2018 with a clean slate.
That can be easier said than done though, so to get you started on your path to a more rewarding financial future here are six financial decisions you’ll wish you had taken on earlier.
Ask yourself, what would happen if you dropped your phone in the loo? It’s something that could happen to anyone (be honest now) and for many that’s hundreds, if not over $1,000, literally down the toilet. For most people an accident like that would mean having to scrape together funds that they don’t necessarily have to spare in order to buy a new phone, or a cheaper model.
That’s why creating a buffer for yourself in the form of a rainy day fund is one of the savviest financial decisions you’ll ever make. Think of it as a future stress-reliever - there just in case you need some quick cash to cover an emergency expense like a medical bill, car repairs or a phone-related mishap.
So just how much do you need to stash away for that rainy day? There’s no hard and fast rule, but for most people it would be at least a couple of thousands of dollars. Aside from the balance, the most important thing is being able to easily access your rainy day fund in case you do need to dip in at short notice. While you could keep it in a regular bank account, an even better solution would be to stash it in a high interest savings account to keep the balance earning you interest.
A budget is the cornerstone of any healthy financial life, so while you might not like the idea of confronting your bad spending habits, you won’t regret creating and sticking to a budget in the future.
So where’s the first place to start in order to create a kickass budget? You’re going to need an overview of exactly how much you earn, how much you spend and what you’re spending on. That includes your salary and rent or mortgage repayments, but also any other bills and expenses like food, transport and fun. After you’ve worked those out, plug them into the Mozo Budget Calculator to see a weekly, monthly or yearly overview of your spend.
There are a heap of different budgeting methods out there - including the 50/30/20 rule which allocates fixed portions of your paycheck to your bills and essentials, savings and spending - but whichever you decide on, the important thing is sticking to it!
Once you’ve got your budget sorted, you’ll still want to be able to keep on track by keeping tabs on your expenses. Thankfully there are a tonne of useful budget and savings apps for your phone or pc that make life seriously easier.
The benefits of owning a credit card are hardly a secret - from the convenience of paying later, to being able to amass rewards points and making the most of complimentary insurance perks. But while using your plastic responsibly can make it a handy financial tool, it can often be easy to fall into credit card debt.
In a recent Mozo survey, credit card debt ranked as Australia’s worst financial bad habit, with data from the Australian Securities and Investments Commission (ASIC) showing that the country as a whole has a staggering cumulative credit card debt total of $33 billion.
With many credit card purchase rates hovering above the 20% mark, even carrying a balance of just $1,000 on your card could end up costing you hundreds of dollars in interest a year. Which, if you think about it, is more than you pay for your yearly netflix subscription!
That’s why one of the smartest financial moves you can make is to pay off your plastic and swearing off credit card debt for good. If that sounds more like a pleasant fantasy than an achievable reality, one option you could consider is using a balance transfer offer to shift your debt to a new card and slowly pay it off without incurring interest.
For a lot of Australians, their number one financial imperative and a major life goal is to own their own home. But given the current cost of property in most Australian cities, being able to afford the home you truly desire is an increasingly hard dream to realise.
While that might seem a crushing reality, opting to buy a home that you can actually afford will likely save you a tonne of stress (and money) in the long run. Given that interest rates are currently at historically low levels, a rate rise in the future (which is a likely possibility) would put even more pressure on mortgage repayments, particularly for those that are already stretched in the first place.
To avoid a potential repayment headache in the future plug your details into the Mozo Rate Change Calculator, or just to find out how much an affordable home would set you back in repayments check out the Mozo Mortgage Repayments Calculator.
Take this example of compound interest magic. Say a 30-year-old with a modest savings account balance of $1,000 decided that they were going to be dedicated by putting away $100 a week from their paycheck into a savings account currently earning a rate of 2.5%. While the interest rate and amount they put away is likely to fluctuate over time, that simple $100 weekly contribution would end up netting a final balance of $235,098 by the time they turned 60 - $77,558 of which is just in interest! That’s why making regular contributions to your savings could seriously pay off in the future.
Now you might be looking at that scenario and thinking how could I possibly stay motivated over that length of time? Whether it’s a final balance you want to achieve, or a more tangible target like an overseas holiday, new car, or even a house, working towards a goal is one of the best ways you can motivate yourself to continue putting more away.
Things can just happen in life that you have absolutely no control over. While a rainy day or emergency fund can be there to mitigate some of those frustrating eventualities, sometimes you just need to be able to rely on another level of protection. Depending on your situation, insurance could be that lifesaver, particularly for things you hold most dear in life such as your car, your home and especially your family.
Take travel insurance for example. According to the Mozo Travel Insurance Comparison Tool, a couple in their 40’s heading to Europe for a month in July could take out a comprehensive travel insurance policy from just $180 which includes unlimited medical cover, cancellation cover and $7,500 in cover for their luggage and personal effects.
Whether it’s cover while you travel overseas, or protection for your home and car, insurance could ultimately be a small price to pay for financial peace of mind.