Did you know? 1 in 4 Australians worry about money on a daily basis – a number that has almost certainly gone up due to our current climate.
Financial stress is one of the worst kinds of problems that you can face – one that’s made worse by generally low levels of financial literacy among most Australians.
However, there are some relatively simple things you can do to yourself to gain a better and clearer understanding of your finances.
Just to be clear, this information won’t be relevant for all – your circumstances are unique and you may not be able to turn all of the following steps into action.
Need assistance? Reach out to our personal accountants in Melbourne.
Planning your personal finances
Watch your expenses
According to some surveys, up to 86% of Australians don’t know how much money they’re spending each month.
Creating a budget and measuring your spending against it is a simple step – however, it’s one that can save you a major headache further down the line.
Planning on your personal finances starts with tracking how much money is going out:
- Rent or mortgage payments
- Interest payments
- Monthly charges and fees
- Credit card repayments
- Minor expenses
Over a month, all of these expenses add up – that’s why it’s so important that you keep on top of them.
Not only that, but the only way to make a budget is to start by looking at your current spending.
2) Budget, budget, budget!
So now you know how much you’re spending. The next step? Budgeting.
Budgeting is all about assigning yourself certain spending targets in order to keep your expenses under control. It’s about telling yourself how much you’re going to spend on certain things throughout the month.
When budgeting, be sure to be realistic.
While you could assign the bare minimum to each type of expense, this leaves you no wriggle room at all – be sure to assign at least a little bit of slack.
If you ask our personal accountants, the best budgets are made with specific goals in mind – for example, say you want to have at least 20% of each paycheck go directly towards your “rainy day” fund.
Armed with this goal and the knowledge of how much you spend normally, you can adjust your spending and allocated set limits each month to each expense.
Finally, a realistic budget lets you assess how your actual spending compares to your ideal spending, and alerts you if you go over one month.
3) Track your finances
Internet banking makes this easy!
Tracking your spending lets you understand where your money is going. What’s more, it’s crucial if you want to check how well you’re sticking to your budget.
Finally, it’s an easy habit to get into – there’s really no excuse not to do it.
Other ways to help stay on top of your finances are to:
- Download personal finance apps on your smartphone
- Set aside 30 minutes at the end of each week to go over your spending and income
- Have an accountability partner that will check how you’re going
4) Build your emergency fund
If recent events haven’t highlighted the importance of having an emergency fund, we don’t know what will!
Unexpected events will most likely happen anytime. Look at the current pandemic – who would have seen that coming 6 months ago?
Of course, it isn’t just world-changing events like the coronavirus that can throw your finances into strife – for example:
- Losing your job or being made redundant
- Having to leave work due to injury
- Emergencies such as storm damage or flooding
- A crash that requires your car to be replaced altogether
One of the best ways to ease the financial burden that often accompanies these unlikely events is to have an emergency fund for times just like this.
Such emergency funds can be helpful in the event of hospitalisation, home repairs and other major expenses.
Building an emergency fund enables you to stay out of debt where you will be using your credit card or will be forced to borrow money when emergency strikes.
It’s never too late to start saving!
(A word to the wise: whatever you do, don’t keep your emergency fund in cash. For starters, cash can go missing; not to mention, you’ll miss out on interest income as well.)
5) Pay your high-interest debt first
Not all debt is the same – it’s often best to pay off your high-interest debt first before moving onto low-interest debt.
For example, credit cards can have high interest rates – if you take your time making repayments, you could end up losing a lot of money to interest.
Once the highest-interest debt is out of the way, move down to the next highest.
By paying these off systematically, you can reduce the amount of money that leaves your bank account in the long-run.
Just to be clear, this isn’t always feasible, depending on your borrowing conditions. That being said, if you can, we strongly recommend it!
6) Personal finance and retirement planning
Did you know? 40% of Australians don’t know how much they have in their superannuation fund.
Being at peace when retirement comes starts by investing today!
Now that most super providers have moved online, there’s no excuse for not knowing the state of your super.
If you ask us, you should be constantly checking how it’s doing, and talking to advisors to see if you’re on track to achieve your retirement goals.
One question that will help you plan for your retirement will be, “What kind of retirement lifestyle do you envision for yourself (and your partner)?”
Our personal accountants in Melbourne can help you figure out what that looks like, as well as how you’re going to get there.
In addition to getting your finances under control, we can also help you plan your investments to maximise your outcome when it’s time to retire.
It all starts by understanding where you want to be when you retire:
- Do you want to move to the country?
- Is your goal to retire early?
- Do you want to travel the world?
- Or do you simply want enough to live comfortably?
Each of these changes how your plan is going to look, and what sorts of investments you’ll need to make!
Improve your financial situation with the help of our personal accountants in Melbourne
Each of these 6 tips are simple pieces of advice that can help you achieve your desired lifestyle and financial goals – however, that doesn’t mean that you should forgo the help of a personal accountant in Melbourne!
Since 1966, Bruce Edmunds & Associates have been helping Melburnians like you achieve their financial goals with a range of personal accounting services:
Whatever you’re aiming to achieve, you can be sure that our highly skilled, meticulous and reliable personal accountants in Melbourne are helping you get there.