03 Feb 7 Financial Decisions You’ll Never Regret
It’s never too late to learn good money management and strategies to put you ahead financially.
Here are seven financial decisions you can start doing now that you’ll never regret and, more importantly, will help you make smarter financial decisions, ultimately leaving you better off to do the things you want to do.
1. Save More for Retirement
How much money will you need each year to enjoy a happy and healthy retirement? According to the Association of Superannuation Funds of Australia (AFSA) Retirement Standard benchmarks, a comfortable lifestyle for a couple, including entertainment, a car, clothes, private health insurance and holidays, can cost about $58,000 a year. A modest lifestyle will require about $34,000 a year per couple. This does assume that you’ve paid off your home loan. Of course, you’ll need more money if you plan to travel the world, and less if you envision days spent reading, watching TV, and playing with your grandchildren.
If you have been living on an above average income and you’ve paid off your home loan, you might need about 67% of your pre-retirement gross income to maintain your lifestyle.
So let’s think about it, if your income is $100,000 and you need $67,000 to maintain your lifestyle, you retire at 65 and will need to ensure income until 90 years old then you’ll need at least $1,675,000 non-indexed. That’s a lot of money. One way to reach such a lofty goal? Put away as much as you can each year now, even if your retirement seems far away.
You’ll never regret your decision to maximise your contributions to superannuation. Interested in boosting your super contributions with simple but effective strategies? Ask us how.
2. Build an Emergency Fund
What happens if your oven just decides to stop working one day? What if your car’s transmission needs to be replaced? If you’re like many people, you’ll put the cost of replacing these items on your credit card, building your debt dollar by dollar.
The better option is to draw from an emergency fund of cash that you have already saved. It’s advisable to build an emergency fund that can cover at least six months of your daily living expenses, 3 months at a bare minimum.
This might seem daunting. But if you deposit what you can each month — starting small is still infinitely better than nothing at all — that emergency fund will steadily grow.
The really smart option here is to have a proper income protection policy on the side. I’m not talking about “Oh I have income protection through super” or “yeah I’m covered through my car insurance company for income protection”. Yeah, but nah. These policies are cheap and nasty and will burn you. We can help you set up the right income protection cover, give us a call.
3. Pay Your Bills on Time
A single missed payment — on credit cards, mortgage loans, car loans, and other debts — can affect your credit score. That missed payment will also stay on your credit report for seven years.
Decide today to never make a late payment again. Having a low credit score makes it difficult to qualify for loans or credit. When you do qualify for these loans, you’ll be faced with high interest rates.
4. Pay Off Your Credit Cards
Carrying a balance on your credit cards each month is a terrible financial decision. That’s because cards come with such high interest rates —18% or more in some cases. This makes your monthly debt grow by too much, even if you don’t add any new purchases to your cards.
Don’t just make the minimum monthly payment on your cards. If you do this, it will take far too long to pay off your credit card debt. Below is an actual example from one of the banks in Australia. If the minimum repayment was made it would take a whopping 68 years to repay the debt! I don’t even think I have that long left to live!!
The best move is to repay debt in full each month and try to curb spending. If you can’t then a good move is to always pay more than the monthly minimum. See the above picture again for the motivation to repay that debt ASAP!
5. Buy a Home That You Can Afford
It’s tempting when looking for a new home or investment property to stretch your budget – especially in the current property market. But buying a property that’s out of your budget, even by a bit, can really hurt. Those monthly mortgage payments can quickly become a burden.
Instead, buy a property that you can comfortably afford, even if it’s not your dream home. It’s advisable that your total monthly housing expenses, including your estimated new mortgage payment, be no more than 30% of your gross monthly income. If you need help financing a mortgage, refinancing or getting pre-approval let us know, we can help find the loan that’s right for you with monthly repayments you can afford.
6. Track Your Spending
You might be surprised by how much you spend each month on lunches or morning coffee. I mean for the average office worker that could be 1 coffee per day at $3.50, which adds up to $17.50 over a working week and $840 per year! By creating a spending book or using one of the many apps available to track those expenses, it might help you make lifestyle changes that can add up to big savings each year.
Once you’ve got a handle on how you spend your money, say over a month, then you’ll know how to cut down and what to cut down. If you’re spending too much on those morning coffees, for instance, you might decide to limit your takeaways to twice per week and use the office Nespresso machine!
7. Create a Household Budget
You might shudder at the thought of drafting a budget for your household. But you can’t get control of your finances if you first don’t know exactly how much money is coming in and going out of your home each month. Fortunately, creating a budget isn’t difficult. It’s a similar process to the previous step, really.
First, write down the income you receive each month. Then write down those monthly expenses that never change, everything from your mortgage repayment/rent to your car repayment, health insurance, car insurance, gym memberships etc. Then write down those payments you make each month that fluctuate a bit. This would include your utility bills, credit card bills, and transportation costs to and from work. Estimate these. Finally, include estimated amounts for monthly groceries, entertainment, and eating out.
Once you have these figures, you can determine how much money you should have left at the end of the month. Armed with this information, you can figure how much money you can save, invest for retirement, or put away for a child’s education.
We can help you in planning for all of these things, it’s what we do, so if you need help in any of the areas covered or want to explore boosting superannuation or refinancing please let us know!
Please note this information is general advice only. Please seek advice before acting on any information in this article.