Whether you take New Year’s Resolutions seriously or see them as a bit of a joke, there’s nothing funny about feeling like your finances are out of control.
Think about what you’d like to achieve by the end of 2018. Book that dream holiday? Upgrade your car? Clear your debt? Start investing? Whatever your money goals, you’re far more likely to achieve them if you have a plan.
If you’re committed to ending the year in a better financial position than you began it, here are five financial resolutions for you to start working on.
1. I will understand my spending better
We know so many people tune out when they hear the b-word, but a budget really is the best place to start if you want to sort your finances out. Especially if you currently find yourself at the end of each month wondering where your money went. With a budget, you KNOW where it went and you can start changing your spending habits to give yourself more financial freedom.
Creating a budget needn’t be complicated. To begin with, you need to list all your income from any wages, investments and other allowances.
Detailing your expenses will involve a bit more work. You need to include regular weekly, monthly and annual expenses like rent, rates, insurance and loan repayments. Then think about what you spend each month on groceries, eating out, clothing, gadgets, holidays, etc. If your total expenses exceed your income, you’ll have to start cutting back in some areas.
Check out a more detailed budget plan here. Or if you don’t have the time to create a budget simply put your details into your Monefly account and it will automatically tell you how much you have flowing in and out of your accounts.
Also factor in a buffer to allow for an annual increase in the cost of living. For the year to September 2017, the Consumer Price Index rose by 1.8%. If you have regular monthly expenses of $3,000, for instance, that equates to an extra $54 a month.
Build that increase into your budget from the beginning, and you won’t find your finances squeezed when prices rise a little during the year.
2. I will work on clearing my debts
The longer you’re in debt, the more you lose on interest payments. Getting back in the black should be a priority if you want to set yourself up with a secure financial future.
If clearing your debts completely this year seems like an impossible task, at least commit to chipping away at them as much as you can.
You might want to look at switching loan provider to get a better rate, or consolidating several debts into one more manageable repayment. If you’re feeling weighed down by all your debt, it could be worth getting professional help from a financial adviser.
3. I will achieve better cashflow
Do you ever struggle to pay your regular expenses, even though you know they’re coming up? Living from one pay cheque to the next is a risky strategy because it gives you nothing to fall back on if you’re out of work for a while.
Improving your cashflow means either increasing your income, decreasing your expenses, or a combination of the two. You might up your hours at work or do another job on the side, or perhaps you just need to take an honest look at your non-essential spending.
If you’re prepared for a more drastic change, how about switching to a more economic car or downsizing your home? The more cash you can free up to pay off your debts and start investing, the better.
4. I will save more
Saving is pretty hard when you have a mountain of debt or cashflow problems (which is why those two points came first). Once you have those things under control, you can turn your attention to creating a savings plan you can stick to. Even if you’re just saving a small amount each month, it will soon start to add up.
Use a high-interest savings account if possible, and set up a direct debit so a fixed amount is automatically deposited each month (ideally straight after you get paid). This way, your savings become just another part of your budget and you hardly notice the money is gone.
If you have a specific money goal, like a new car or a deposit for a home, work out how much you need to put aside each month to reach your target in your desired timeframe.
You can also apply this methodology to regular annual expenses like car registration and insurance. Wouldn’t it be nice to already have the money set aside instead of scrabbling around to gather the funds at the last minute?
5. I will start thinking long-term
Taking these positive steps to sort out your finances will put you in a better position to start thinking about longer-term investments.
You might choose to focus on super or non-super investments, depending on your situation.
One way to grow your super faster, provided it suits your financial situation, is though salary sacrificing. This arrangement with your employer means a certain percentage of your salary is ‘sacrificed’ to super, and they contribute a bit extra on top. If you keep doing this for the rest of your working life, it can make your retirement fund a lot healthier.
You’ll need to keep in mind the annual super contribution caps if you do choose to invest this way.
There are lots of ways you can invest outside of super, too. You might not receive the same tax concessions, but you do have more flexibility over when you can access your capital and earnings.
It’s a good idea to speak to a financial adviser before making any big investment decisions. They can create a personal investment plan and provide guidance on the most suitable investments for your current situation.
To recap on our five financial resolutions:
1. Create a budget to track your income and expenses and understand where your money is going.
2. Work on clearing your debts – even if you can’t pay them off completely this year, at least make a serious dent in them.
3. Improve your cashflow by generating some extra income, cutting down on unnecessary expenses, or both.
4. Find a way to start saving towards your money goals, even if it’s just a small amount each month to begin with.
5. Consider your long-term investment strategy – should you be salary sacrificing to super or investing elsewhere for the future?
We reckon these are some of the best New Year’s Resolutions you’ll ever make!