So, you’ve decided that you’ve had enough. Another year is nearly over and you’re in exactly the same financial position that you were last year, hell if you’re honest with yourself, you may even have gone backwards.
It’s time to start planning, so that this time next year you’re not climbing off the wheel like a hamster again and wondering why you bothered getting out of bed every day to go to work. The following are some basic issues that financial planners take into consideration when assessing your future for you. This should help you get started, if you’re doing your own.
Start by setting financial goals that you would like to achieve in the next 30days, 12 months and 5 years. It would be detrimental to have a list as long as your arm as this can result in a loss of focus, Try picking your most important one for each time frame.
You really don’t need to use sophisticated software to manage your cashflow. You just need to know where it’s going. Try this simple excercise. Buy one of those small pocket size note books and for the next 4 weeks, write down absolutely everything you spend money on. From the coffee you have in the morning at your local cafe, to the amount you spend on car parking or public transport. It would be a fair bet that by the end of the first week you will have found some area’s to save cashflow and use towards either increasing your savings or reducing your debts faster.
If you seem to be surrounded by lots of debts and every effort to reduce or clear them results only in increased frustration then why not try the snowball method to debt elimination.
That is, you start by paying only the minimums on all your debts except for the smallest debt you have, which as well as getting the minimum payment now also gets the extra money you found in the cashflow excercise. Once you’ve paid this debt off, you then move to the next biggest debt which now receives it’s minimum payment, the money you found in the cashflow excercise and now, also the payment you were previously making to the first debt.
As each debt is paid off then the cashflow available for debt reduction on the next debt is increased, hence the term ‘Snowball’. Remember, if the debt you are currently focussed on is a credit card, then reduce the limit every time you breakthrough each $1,000 barrier. For example if you have a $5k limit on your credit card and you get the debt down to $3,900 then reducing the limit to $4k will reduce the danger of that debt increasing again.
Despite the common belief that you have little or no control of your Super, the very opposite is true and while you may not get access to your money until you retire, you should at least, make sure that you have provided your super provider with your TFN, nominated a beneficiary to receive your benefits in the event of your death and that the money in your fund is invested in a manner that is consistent with your risk profile and time frame for investment.
I, highly, recommend speaking to your financial planner about this.
5) Investing for the future.
Money makes money, this saying about wealth is as well worn as the one your parents used to parrot to you whenever you wanted a new toy “money doesn’t grow on trees”.
What are you supposed to do if you don’t have any money to invest?
Simple, borrow it!
While you should limit the number of debts you have for toys,( cars, jetski’s, breast implants etc.) borrowing money to generate wealth for your family is both smart and can also be tax efficient.
Be open to the idea of using other peoples money for investment. Just don’t borrow more than you can afford.
Instead of waiting until the end of October to do your tax, why not do it as soon as possible and add your refund to your ‘Snowball’ plan but remember if you use it to pay off a credit card then reduce the limit at the same time. Usually, it just takes a phone call.
If you’re one of the few Australians that isn’t underinsured and you own life insurance in your own name, why not move it to your Superannuation so the premium comes out of your super balance instead of your cash flow. This will make even more cash flow available for debt reduction. There’s a bonus for doing so, your super fund can claim the premium as a tax deduction where you cannot.
Remember, this will impact on your Super balance though, so you need to plan ahead for managing this impact ion the future. Your financial planner will help.
Retirement is a function of income, not of age.
If you hit your financial goals and decide to retire early what would your life look like? Where would you live? How much income would you need to stop working once you’ve paid off your home loan.
If you don’t take time out to consider these points then be prepared to join the 95% of Australians who retire at age 65 desperately hoping that the Age Pension will be enough to sustain them. Ask yourself, do you want to spend 45 years in the workforce, only to retire on $14,180 per year.
9) Estate Planning
Once a year take the time to consider your estate planning, has anything changed in your life that would require a new Will?
For example, did you buy a new investment in one partners name, did you sell an asset, or even more importantly has information come to light that has caused you to change your mind about the suitability of the godparents you had previously selected. Would you really want an uncle with a gambling problem to be responsible for the proceeds of your life insurance which were intended to provide for your children?
This is the most important step of all.
Take 1 hour one day a month, the first Saturday for example, and sit down and go over your goals and current financial position.
Did you hit your 1 month goal?
If you didn’t, what do you need to do this month to ensure you do? Also, what progress has been made on your 12 month goal and 5 year goals?
If you find that the goals are either too easy or too hard then think about reviewing them. You should have to grow to achieve goals but you don’t want to set goals that are so large you lose faith that you can achieve them.
I hope you found this article beneficial, please feel free to share with your friends if you think they would also benefit.
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So, you’ve decided that you’ve had enough. Another year is nearly over and you’re in exactly the same financial position that you were last year, hell if you’re honest with yourself, you may even have gone backwards. It’s time to start planning, so that this time next year you’re not climbing off the wheel like…