Financial Future – Photo by Kristina Paukshtite on Pexels
When Australians were surveyed in late 2020, over 70% of respondents were concerned about their future financial situation. If you fall into this category, then instead of sticking your head under the couch cushions (making yourself the human equivalent of an ostrich), today is a good day to make plans for your financial future. We have all heard about compound interest and how important it is to start saving when you are young, but what are some of the first steps?
Assess Your Current Position
Before you start setting up meetings with SMSF Accountants and investment consultants, you need to get your budget in order. Whether you are a pen and paper lover or a digital spreadsheet bandit, it is helpful to start by mapping out your income, expenses, and any outstanding debt.
It’s almost impossible to effectively cut costs, smash debt levels, and save all your pennies without knowing your current financial status. This assessment is the first essential step needed to set yourself up for the financial future you want.
Set Some Goals
If you are anything like me, you might have given up goals after your 38th New Years’ resolution failed to stick past the second of January. However, no matter how jaded you may have become, it is time to rethink goal-setting.
Research conducted by the Harvard Business Review found that the act of writing down your goals on a piece of paper increases your chances of achieving them by a factor of ten. Your chance of success is amplified even further if you write them down and talk to family or friends about them as well.
With this in mind, it is time to dig out a paper and pen and write down what your ideal financial future looks like. Maybe it involves paying off your HECS debt or saving for a home deposit. Alternatively, you might be working towards FIRE – Financial Independence, Retire Early. Or, you might want to become a property magnate with an investment portfolio to rival Meriton owner Harry Triguboff’s. Either way, having a firm goal in mind will help you on your way.
Better Financial Future – Photo by Micheile Henderson on Unsplash
Pay Down Your Debt
The next step is to attack your debt. The reason for this approach is that debt generally attracts interest and can also damage your credit score, which will impact your ability to borrow money, buy a house, or take out a business loan.
Not all debt is created equal, though. Your HECS or HELP debt, for example, is indexed each year but doesn’t attract interest. It also doesn’t need to be paid off until you reach the compulsory repayment threshold, which in 2020-21 was $46,620. The best practice is to look at which debt you are paying the highest interest rate on and pay this off first.
Do a Spending Detox
I just came out of a three-month self-imposed spending ban. I wanted to get back on track with my spending and saving habits and stop flittering money away on things that I didn’t need. Doing this kind of challenge has two benefits – the immediate savings and a shift in mindset when it comes to clicking that conveniently located “add to cart” button. I am not about to give up shopping altogether, but I am confident I will buy more mindfully in the future.
With financial health directly linked to mental health and wellbeing, crafting a better financial future has benefits above and beyond financial independence or early retirement. So, there’s no better time than now to make your vision a reality!