Managing Your Finances Post-Christmas 

The new year is a great time to set goals – this includes rethinking our finances for the year ahead, such as making a plan to ensure we are doing the best for our money whilst still allowing ourselves some niceties in life.

A good way to begin the new year in terms of managing your finances is a review of the old. How and where have you been spending your money? This can be a great exercise – not just because you’ll find that you have spent a lot of money in places you didn’t realise (thanks to those coffee habits and automatic app renewals).

In order to help you manage your finances for the year, we’ll take a look at the following:

• Cutting costs to optimise the money you spend on life’s essentials.
• Clearing debts and tips to start saving.
• Creating a budget (using the ’50,30,20’ method).
• Planning for retirement.

Cost Cutting

When it comes to managing your finances, a good starting point is reviewing all your major essential purchases and making sure that you’re getting the best deals. Some areas to think about include:

• Ensuring that you are getting the best deal on your mortgage? This can be the major life expense – make sure you’re getting the best rates from your provider.
• Comparing a range of service providers (energy, gas, insurance, internet, etc.) – there are
• Rethink your entertainment subscriptions – do you really need all of them?

Whether you are paid weekly, fortnightly or monthly, a lot of our wages are spent on these essentials – by picking up the phone to providers and doing quick internet searches, you could save some extra money to spend on the things you want, not need.

Clearing Debt and Saving

Debt and savings look like strange bedfellows, but in reality, they are actually linked! When you’re managing your finances, you may look at putting aside 20% of your income for either clearing your debts or building your savings. Which one you do will depend on where you are on your financial journey.

Tips for Clearing Debt

The festive season and summer holidays can be an expensive time of year, with many of us overstretching our finances during this time. A very important step in managing your finances is to understand your debt and work out a repayment plan that will fit within your budget.

• Create a list of all your debts – including how much you owe, the rates of interest and repayment schedules.
• This is a good chance to renegotiate with each of your lending institutions. Be upfront if you are having trouble paying these off and ask for their best rates of interest and return.
• Consider consolidating your debts – this can help if you have any smaller debts with a high-interest rate. You may be able to make these separate loans into one larger, longer loan with a lower interest rate.

Once you have settled on a frequency and amount for any repayments or savings, automate the process. This will ensure that the first money to leave your bank account when you receive your pay goes towards either settling debts or powering up your savings, and will be cooked into any future budget you’ll create.

Tips for Saving After Clearing Debt

Once you’ve paid off your debts, you can officially begin using the extra money as the first of your savings. A good aim would be to have three months of wages as savings for emergency situations and unforeseen circumstances. You may want to bump up the amount you save if you’re saving for something specific such as a car, first home, big holiday etc.

Budgeting

Now that you’ve looked at cutting costs and you know your monthly debt/savings allocation, it’s time to begin managing your finances with a yearly budget. There are lots of different ways to budget but an easy rule for a financially healthy life is ‘50/20/30’. Using this method, each number represents a percentage of your income.

• 50% of your income should be allocated to paying for life’s essentials. These are all your essential bills for day-to-day life such as a mortgage, rent, car payment, house bills, grocery shopping, etc.
  
  
• 20% of your income should be allocated to clearing debts or adding to your savings. If you need to spend more than 20% to help relieve debt, the extra money will need to come from your wants percentage.
  
  
• 30% of your income should be allocated to paying for things you want. This is all the spending on things you want – meals out, streaming subscriptions, holidays, etc. As mentioned, if you are over-spending in either debt or life essentials, the money will need to come from here. This means fewer holidays and nights out, though we all need to have nice things in life, so finding a good financial balance is essential!

Planning for Retirement

We should all be keeping one eye on the future and how our pensions are performing. It’s good to be aware of how we are tracking with our super and whether this amount will work with our future financial needs. When it comes to your retirement plan, there are a number of things that need to be considered.

These include:

• Current age.
• Planned age of retirement.
• Expected income until retirement.
• Planned contributions to your retirement nest egg – now and for the rest of your income-earning years.
• The assumed rate of return on superannuation and other investments, and when you can access them.
• Other sources of retirement income and whether those amounts would be fixed or varying.
• Planned retirement lifestyle and associated expenses such as travel, accommodation, food, transport, and healthcare costs.

The Government’s MoneySmart website has a really useful calculator you can use to assist with retirement planning and only takes about 15 minutes to complete. If you feel you are not on track, you can boost your super with concessional contributions. In fact, investing in your super is a great way to save on tax. Currently, it’s possible to offer an extra $27,500 a year into super (including your employer’s contribution) and only pays a very low 15% tax, rather than your usual tax rate. This is a great way of saving for the future in an efficient way.

With a small amount of organising in this new year, you can set yourself up for an easier, more financially viable year ahead.

If you would like to learn more, please speak to a professional for further advice.

*Please note: Altius Group is not a group of financial advisers, this article is based on research.