Looking after your finances now will help set you up for the future. Here are five steps to make that happen.
If you are smart about your wages, you can create a good financial base to set you up for the future. You don’t need to win the Lotto or have a trust fund — you don’t even need to be earning an exorbitant amount.
Here’s how:
Track your spending
Putting a budget together isn’t the most thrilling activity to tackle on your night off, but having one is a necessity. Create a simple budget with a planning tool like Money Help or Money Smart to track all your incomings and outgoings. Remember to list everything, from the largest expenses like a new car or a holiday, right down to your Netflix subscription and takeaway coffees.
You might be surprised as to where you’re haemorrhaging money. As the saying goes “look after the pennies and the pounds will look after themselves”. While this may be a bit simplistic, it does indicate that the little things can (and do) add up. For example, cutting out that $4.50 coffee every day will give you a little more than $1,640.00 by the end of the year. And that’s just one small item; imagine what else you can trim here and there.
Avoid credit cards at all costs
Debts can cripple you, and credit cards are one of the worst offenders. High interest rates and fees galore will get you stuck in the credit trap and you won’t be going anywhere fast. If you’re only paying the minimum repayments, it may take decades to pay off your card. ASIC’s Money Smart does the maths for you:
Say you have $4,400 in credit card debt. That doesn’t seem like that much, you might think. But if you only pay the minimum repayments, it will take you 31 years — yes, that’s 31 years — to pay off approximately $14,900 in interest. But if you pay $216 off each month, you’ll have zero debt in two years and save $9,700 in interest. Use the ASIC Debt Calculator here to work out your own repayments.
Different tactics to tackle debt
There are a few different ways to reduce debt. Of course, it makes the most sense to pay off the debt that has the highest interest rate. This is the Debt Avalanche method. You will save money in the long run and this is the system usually recommended by financial professionals. On the other hand, if you’re easily discouraged at not seeing a dent in your debt despite all your efforts and you continually end up back at square one, you might consider the Debt Snowball method. This means you attack the smallest balance first to create momentum. You’ll feel good about seeing your hard work pay off and it will (hopefully) encourage you to keep going. Read more about the two methods here
Emergency saving
This is a no-brainer but nevertheless a simple fact of life: you must save for a rainy day. With this in mind, it would be wise to set up an emergency fund as soon as possible. A survey by finder.com found that one in five Australians doesn’t have $500 to cover an emergency, and one in eight doesn’t even have $100 spare. An emergency fund will be a lifesaving fallback option should anything happen to you or your job. Start putting aside a little in an automatic savings account and save any extras that come your way, such as tax returns. Aim for three to six months’ worth, if possible. This will cover essentials like rent or mortgage repayments, food, transport, loan and credit card payments, bills, HECS fees, and so on.
Make yourself indispensable (or as much as you can)
While you can never secure your future at a company indefinitely, you can take steps to help your position. For example, could you put your hand up for extra projects or enrol in courses or learn more skills to help the organisation’s bottom dollar? Make yourself as helpful as possible and you may not be the first one to go if redundancies start. If you’re worried about the general future of your occupation, could you start learning skills in a similar field now or take up an online course? Anything to make yourself more well-rounded is a bonus.
If you need personalised advice, seek out a financial planner or financial counsellor to help get yourself sorted. The sooner the better.