In last month's blog we talked about taking stock and setting goals for the new financial new year. Because good financial planning is a long-term proposition, which requires regular action, this month we bring you Doug’s top 10 tips for mastering your finances throughout the next year and beyond.
Tip # 1: Failing to plan is planning to fail
Budgeting might not be the most exciting task but by budgeting weekly or monthly, with the goal of saving a minimum of 10 percent of your earnings, you will steadily accumulate funds for when you most need it.
Tip #2: Make saving automatic
Make it easy to save this 10 percent by making it automatic. ‘Set and forget’ plans are ideal so, if you can, set up a direct debit to funnel that money into a separate saving account on payday. You won’t miss the money if you don’t see it and the temptation to overspend will be greatly reduced.
Tip # 3: Think long-term, not short term, and stay focused
It’s easy to get caught up in the moment but it’s important to focus on your long-term goals, as by acting meticulously in saving you will win in the long run. Find ways to keep that big picture goal front-of-mind. Visual cues that you see regularly can help; perhaps it’s a picture of the dream home you hope to own or something that represents your ideal retirement stuck to your fridge or used as your screensaver.
Tip # 4: Save first and spend second, not the other way around
Many people spend and then wait and see what they have ‘leftover’ to save. This is generally not a winning strategy as it makes it far too easy to overspend in the first place. During our 40 years in business we have definitely found that people who save first tend to accumulate more over the long-term. Making it an automatic part of your routine—such as saving your 10 percent as soon as you get paid—will put you on the right track.
Tip # 5: Try to save on purchases without missing out
Make sure you are always in the habit of asking yourself what the differences are between an expensive and cheaper product. There are always reasons why something is cheaper and it’s usually that certain benefits are missing. When you understand what these benefits are, it’s easier to make the decision that best suits your circumstances. Sometimes saving on an upfront cost can be a false economy if the product doesn’t meet your biggest needs—such as insurance products that don’t properly protect you. But other times there’s no point paying more for extras that you don’t actually require.
Tip # 6: Out of little things, big things grow
Today’s ‘tap and go’ culture makes it a little too easy to spend without thinking. Consciously saving a small, regular expense that you can do without can add up to huge savings over time. That $4 daily latte adds up to over $1000 per year. Taking your lunch just one day a week could save you $500 a year. How far could that $1500 annually go toward your future if you directed it into a long-term savings account, your home loan or your superannuation instead?
Tip # 7: Use your superannuation as a long-term savings vehicle
Super is one of the best, most tax effective long-term savings strategies you can employ. Best of all, it helps set you up for a comfortable, enjoyable retirement. By salary sacrificing every week into your super fund, you are automatically saving over the long term and you most likely won’t miss the small drop in take home income.
Tip # 8: Set your dividends to reinvest automatically
If you own shares and receive dividends, a fantastic, painless strategy is to instead Dividend Reinvest automatically and thereby increase your share holdings yearly. You won’t miss the payouts if you’re not relying on them for income and that compound interest will really help your share portfolio grow over the long-term.
Tip # 9: Know your limits when it comes to gifts
We all want to be generous with our loved ones and it’s easy to get carried away with special occasions. However, over the year these can really add up. Set an annual limit for birthday, Christmas, anniversary and wedding gifts as part of your budget and be sure to stick to it. Getting creative with ways to give thoughtful gifts that cost less can actually result in some of the most meaningful presents. How about a home-cooked meal, a handmade gift and card, or an offer of babysitting instead?
Tip # 10: Add new tools to your financial toolbox
There are so many great online tools, apps and software packages that can help you set and stick to your financial goals. We mentioned last month that we love a program called CashMaster Pro, which we use to help our clients' better master their money. We also recommend going to ASIC’s Money Smart website. Their terrific Calculators and Apps section features ‘Top 10 Calculators’ that can help you track not only your savings, but also your budget, retirement planning, savings goals and more.
Please talk to us anytime about how we can help you manage your finances. Call us on (02) 8268 2900 for an obligation-free chat.