Financial advice is important, especially now when the cost of living is high, interest on home loans is soaring and savings rates are also increasing but more slowly. As financial advisers, our role is to help you understand your money so you can use it to achieve what really matters to you throughout your life.
While successful financial planning comprises carefully considered strategies of varying complexity for growing and protecting your wealth, it also involves financial education, mentoring and passing on the practical tips. Here are our seven simple and practical financial tips for everyday life, to implement and share with those you love.
It’s true, financial planning has inherent complexity that must be considered over a lifetime because decisions made now can have impacts (positive or negative) in years to come. But there are also simple, practical everyday financial tactics you can apply that can make a positive difference. Here’s seven to consider:
1: Make the most of your home loan offset account
We talk to our clients about offset accounts quite a bit, and at risk of sounding like a broken record, here’s why…
Offset accounts allow you to get ahead of your home loan, reduce the loan cost as interest is only changed on the loan balance, provide opportunity to make effective use of savings while allowing easy access if you need to withdraw your money for an emergency, to meet cost of living expenditures or if you want to use the money for something else. (You can learn more about offset or redraw loan facilities here)
2: Bonus boost
When you receive a pay increase or a bonus, you’ve got a couple of choices – spend it or deposit it in your offset or investment account. If you’ve been managing your lifestyle expenses prior to this extra income, then it’s probably surplus cash and you don’t really need it. Taking the approach of offsetting your home loan or investing it will mean your discretionary spending doesn’t increase just because your earnings does.
3: Out of sight out of mind
Use a direct debit to transfer a predetermined amount from your pay every month, fortnight or week (depending on your pay cycle) to your offset or savings account. Don’t look at this account and don’t touch the funds except when you have enough to invest. Treat the transfer as a one-way street.
This out of sight out of mind approach, has two clear benefits. Firstly, the money is physically removed from your operating account, so you can’t spend what’s not there, and secondly, you’ll actually save. Imagine the surprise when you eventually check your account balance!
4: Resist false economies
While it makes sense to take advantage of a discount offered when paying your car registration annually rather than six monthly, some expenses like private health insurance don’t always offer a discount for upfront yearly payments. Similarly, don’t pay bills annually if the discount isn’t greater than the annual interest rate amount on your home loan.
It’s always best to check, and if it doesn’t consider paying the expense in instalments and keep your lump sum amount to offset interest on your home loan or earn interest in a savings account.
While paying 26 fortnightly loan repayments, rather than 12 monthly repayments may work for some, it won’t suit you if your employer pays you monthly. All it will do is delay when the bank receives the funds, which increases interest payable.
5: Look after the pennies and the pounds will take care of themselves
Many of us are familiar with this saving tactic commonly used by our parents and grandparents. While we haven’t had pennies in Australia since 1966, fifty-cent pieces, then gold coins and now $5 notes stashed in a jar and deposited in an account when the jar is full, is an effective way of achieving saving goals. Of course, you first have to commit to using cash, rather than your tap ‘n go card and therein lies another benefit. It can curb impulse spending as you’ll only have access to the cash you have on you.
Cash flow management is a lifelong financial planning pillar and understanding your income and your expenses (including regular savings) allows you to enjoy the rest for living your lifestyle of choice. You can read more about managing your personal cash flow here.
6: Save what you don’t miss
It’s a fabulous feeling when you pay that last instalment on an expense that you’ve been paying for months or maybe even years. But what then, you’ve learned to live without that money, so what will you do? Spend, save or invest it?
We know plenty of people who enjoy yearly holidays funded by instalments that once paid for straightening teeth and keeping a roof over their kids’ heads while they studied at Uni. The key, similar to point 3, is to divert the money to a separate savings account.
7: If you don’t ask you don’t get
You’ve worked hard for your money and when it comes to discretionary spending, first think twice about whether you really want or need something, then ask if there’s a special offer, a discount or whether the retailer will price match.
This article is a departure from our usual financial planning considerations, its purpose is to reiterate that making the most of your money, taking control and achieving what really matters most to you, requires using all the financial tools at your disposal.
While we are committed to providing a carefully considered advised approach to managing your money, generating wealth and planning your retirement and beyond, we’re also realists providing practical financial advice for everyday life.
To discuss your financial planning requirements, please contact Brett Cribb, Steve Nicholas or James Marshall on +61 (0)7 3007 2007, alternatively email email@example.com, and let’s make it happen.
Stratus Financial Group helps professionals, executives, business owners, families and retirees manage their complex financial affairs and coordinate their professional advisers.
Stratus Financial Group and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306. This is general advice only and does not take into account your objectives, financial situation or needs, so you should consider whether the advice is relevant to your personal circumstances. You should also read the relevant Product Disclosure Statements (PDS) before making any financial decisions.