2020 may be remembered as the year we’d rather forget. The terrible health consequences and fatalities associated with the spread of Coronavirus both here in Australia and around the world has taken a heavy toll on many of us; particularly for those who have lost loved ones and livelihoods.
While nothing can replace the loss of a loved one, and our sympathies are with those affected, if you are heading into 2021 with accumulated debt or other financial worries, here are some strategies that may help.
Review your household spending
Taking the time to review and assess your household income and expenses is the first and most important step in gaining a clear understanding of your financial position. First, list your total income from any earnings, allowances and investments. Then, factor in all your weekly, monthly and annual expenses, including the costs to repay any debts such as credit cards, personal loans or your mortgage. That way, you’ll know exactly how much you have left over each week (or month) for leisure and entertainment – or where you might need to tighten your belt.
Focus on clearing debt
Clearing your debts might be easier said than done – but whatever you do, don’t stop chipping away at them. Remember, the longer your debts stay with you, the more you’ll have to spend on interest.
If your debts are getting you down, talk to us. We may be able to help with a strategy that could make managing and reducing your debts a bit easier. For example, if you’re surrounded by credit card bills, you may be able to consolidate your debts onto a single card with a lower interest rate than you’re currently paying. Or if you feel like you’re not making any progress paying off your home loan, consider switching to another provider with a more competitive rate.
Manage your cash flow
If you find yourself living from pay cheque to pay cheque, it’s time to examine your incomings and outgoings to see if there’s a more efficient way to smooth out your cash flow. One option may be to set up automatic payments for regular bills so that you avoid late payment penalties and to take advantage of discount rates offered by a number of utility companies for payments received by the due date.
If your income is insufficient to meet your outgoings, consider whether there may be opportunities to supplement your income either by working more hours in your current job, or doing some extra work on the side, or finding a new role that pays more. If neither of those options are realistic, you may need to revisit your budget to see where other savings measures can be made.
Create a savings plan
Once you have your cash flow and debts under control, it’s much easier to create a realistic savings plan and stick to it. To stay motivated, remind yourself that every bit you put away adds up – and could make an enormous difference in the long run.
Saving can become easier if you open a dedicated savings account and keep it separate from the account you use for everyday expenses. And by setting up a direct debit, you can automatically deposit a fixed amount from your everyday account as soon as you get paid (in other words, before you even notice it’s gone). This will give your savings a better chance of growing without you having to put in the hard yards.
This can also be a helpful way to budget for larger expenses that come around once a year, like your home insurance or car registration, so they don’t sneak up on you.
Focus on the future
Once you have your finances under control, you’ll be in a stronger position to start thinking about your longer term wealth and wellbeing.