This January feels a little different to previous years with the high number of COVID transmission cases through the community. Even though we have already experienced 2 years of the effects of coronavirus, the opening up of the borders has certainly been a game changer.
With more people working from home and the likelihood of school starting later than usual it has provided us time to reflect on how we live our lives and what is important to us.
We would encourage you to take this opportunity to regardless of your stage of life to think about your finances. Below is a checklist to use as a starting point.
- A good starting point is to understand your current situation, this can be done by listing your assets and liabilities along with your income and expenses.
- Set yourself some goals. Break them down into short-term (less than two years), medium-term and long-term (longer than five years). Make them specific and measurable. So instead of saying you want to “save for a car” make the goal that you “want to save $1,000 per month to save for a car” instead.
- Reduce your high interest debt. If you have rolling credit card debt it is likely that the interest costs will be significantly higher than other forms of debt. It may be better to consolidate this debt into a lower interest rate loan. If this isn’t an option, focus on paying down higher interest debt first, with the goal of eliminating short term debts.
- Review your home loan. Speak to a mortgage broker or banking provider, if you are content with your existing loan arrangements revisit repayment amounts and recalculate how long your mortgage will take to pay off and whether you can afford to increase loan repayment amounts.
- Start budgeting or review your existing budget. With the improvement of technology budgeting is becoming easier. Look into online budgeting software or budgeting apps on your phone such as Pocketbook, the major banks provide budgeting tools on their websites. They are also starting to integrate savings tools into internet banking.
- Save money. This dovetails into your budgeting and also setting goals but due to its importance it should be a standalone discussion point. Have this as your number one priority in your budgeting and set up a direct debit so that your savings are automated.
- Review your risk profile. As the majority of people have superannuation, at the very least you should understand the level of risk you are taking in your super. If you have not previously thought about this it is likely you are in the super funds default option. Start by understanding the percentage of cash, property and shares that make up the fund as this will be the biggest determinant of your returns and level of volatility. Many people discover this default fund is not suited their desired risk tolerance.
- Set a few hours aside to review your insurances. General insurances such as house, contents and motor vehicle along with risk insurance including life, TPD, trauma and income protection.
- Estate planning, ensure that your will and powers of attorney remain valid and up to date with your wishes. A well-designed will should cover most events through your life but if a beneficiary, executor pre deceases you then updates will need to be made.
If you are starting from scratch this list can be daunting but it doesn’t need to be done all at once. Chip away at it and you will feel the weight come off your shoulders as you gain control of your finances. Remember you can outsource and seek assistance where needed.