With 2020 now upon us, it is the perfect time to reassess your finances.
In December 2018, almost 1 in 10 Australians promised to get themselves out of debt for their new years’ resolution, making it the 4th most common goal for the year according to research by Finder.
It’s a noble goal, but one that separate research from fitness technology company Strava suggests will be abandoned by January 12th.
But for those dedicated few with an eye to improving their finances in 2020, the best place to start is by conducting a review of their current finances and thinking about where to go next.
And according to Amanda Varidel of Heart Mortgage Services, it doesn’t need to be a gruelling formal affair – all you need is a little spare time to go through the following five steps.
1. Stocktake of your current position
It’s much easier to get where you want to go when you already know where you are. The first step in reviewing your finances then is naturally to work out what you’re working with.
“Have a bit of a stocktake on where you are now,” Amanda said.
“Do a simple little spreadsheet, list your assets and liabilities and see where you’re up to. Some people find that by tracking that every three months, it gives them a bit of motivation to keep them going in the right direction.”
People struggling to design their spreadsheet should head online, Amanda said, as there is a range of free resources and model spreadsheets available to get you started.
It’s also crucial at this point to set a goal for your finances.
Why bother taking stock of your money if it doesn’t matter what happens to it afterwards?
It’s best if your goals are clear and concise, and if you have a partner be sure to talk about your goals with your partner so that you’re aligned. Those goals should then be written down on your spreadsheet or somewhere you’re likely to see it regularly to remind you of what you can achieve.
2. Work out a budget
Wealth creation starts with good cash-flow management, so whether you're paying down debt or planning a trip to Paris budgeting is vital.
Budgeting can be as involved and complicated as you want it to be, but a simple way to make sure you have enough money is to work backwards from your goals.
“Work out what you need to do to achieve those goals. That’s the easy way to do a budget if you don’t want to do a budget,” Amanda said.
An important (and often overlooked) facet of budget planning is setting some money aside for emergencies.
Ideally, you would want 4-month’s worth of income tucked away in case something unexpected – like car troubles or emergency medical bills – comes up.
3. Manage your debts
Australia’s household debt levels are sitting at historically high levels with little sign of coming back down soon, making debt management crucial for most Australians.
There are a few options for managing debt – is it worthwhile consolidating your debts altogether? Perhaps paying them down faster? Or even looking for a better deal and refinancing?
Regardless, as a general rule is to make sure you pay down your highest non-deductible debt first “as a general rule”.
When consolidating multiple debts, it is important to check how much you are repaying afterwards to make sure its an appropriate amount.
“You might be paying $100 on one loan and $1000 on another each month, some people will amalgamate that and leave their repayments at $1000,” Amanda said.
“Even though they’ve amalgamated their higher interest loan into a lower interest debt, if they don’t keep up their repayments they’re actually going to go backwards.”
4. Check your super
The start of the new year is a great time to set down and check whether your super is on track or look for duplicate accounts that might be costing you money. But another important step to take is to review the insurance policy contained within your super, to make sure it meets your needs and isn’t charging too much.
5. Estate planning
No financial review is complete without tackling the morbid issue of estate planning, Amanda said.
This means appointing a beneficiary through your super, updating your will (or writing one if you haven’t already) and making sure everything is in order in case the worst happens.
Your Choice Mortgage Brokers Pty Ltd atf Halo Innovation Trust trading as Heart Mortgage Services - Australian Credit Licence 38643
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