Nuts and Bolts
Decided to start sorting out your finances? Read on…
1) Work out what you spend vs what you earn
You might get a shock when you find out how much you spend each month but it’s better that you find out now so you can change your habits if you need to.
Fill out the budget planner at the Australian Securities and Investments Commission’s website MoneySmart and you’ll soon see where you stand. Then it’s all about working out what you can live without and making a conscious decision to save that money instead. Work out how much you might be able to save using an online savings calculator (eg – ING’s regular savings calculator).
2) Get rid of your credit card and personal debt first
Pay off any personal debt as quickly as possible – see a financial adviser if you need help. Keep an eye on your spending and, if possible, save up for any big purchases before you make them rather than putting them on your credit card or taking out a personal loan.
If you’re struggling with debt, try to do something about it as quickly as possible. MoneySmart has some good pointers. Find free financial counselling (NOT financial advice but help regarding your options and general help understanding your financial affairs) at Commonwealth Financial Counselling and Centrelink (Financial Information Services).
3) Set aside money for any emergencies
Experts recommend that you save at least three months of living expenses and stash it away for emergencies in a cash account (but not your everyday bank account where you might be tempted to spend it!). So if you spend $2,000 a month aim to have about $6,000 saved to cover yourself.
Where to find a good savings account? There are loads of websites that compare interest rates, features and fees of savings accounts. Make sure to look out for high-interest-bearing online accounts and term deposits offered by most financial institutions.
4) Work out your goals and start saving…
Next, write down everything you really want and start thinking in terms of investing for the short-term, medium-term and long-term to reach those goals. Do you want to have a deposit for a home saved in three years? Then think about opening a separate savings account and start putting away an amount you can afford every month. It’ll soon add up.
For longer term goals experts like David Bach and David Chilton suggest saving around 10% of your pre-tax income into a managed fund via a direct debit from your everyday bank account each month. And don’t forget your superannuation as a long-term investment. The effect of compound interest can see even small regular deposits (with interest and dividends re-invested) grow into a large sum of money over time.
5) Ask for help: find a financial adviser
Check out the Australian Securities and Investments Commission’s website MoneySmart – it has loads of great information about obtaining personal financial advice and finding a qualified financial adviser. Experts often suggest you find an adviser who charges by the hour instead of receiving a commission.
An education and information service available to everyone in the community. It’s independent, free and provides services by phone, personal interview and through seminars. FIS Officers are not financial advisers – they won’t give you advice or prepare a financial plan for you but they can help you to understand your own financial affairs.
At Checkmyfile you can calculate your credit score and order a free credit report. There are a few to choose from – for a free version click on the option for a credit report analysis by Dun & Bradstreet (an international credit reference agency).
A number of community organisations around Australia offer free financial counselling. The Australian Government website tells you how they can help and where you can find them. Be aware that financial counsellors are not financial advisers and will not give advice or prepare a financial plan for you. Instead, they can show you how to make informed decisions and help you to take control of your finances.
The Australian Securities and Investment Commission’s website has lots of information on financial products, helpful calculators, tips on managing your money (including suggestions on what to do if you’re in debt) and there’s even a section dedicated to women and money.
RateCity (powered by Canstar Cannex, a specialist research service used by financial professionals, government and media) compares credit cards, personal loans, home loans, savings accounts and car insurance, among others.
A rate comparison website which provides information about home loans, credit cards, personal loans and personal insurance.
Smart Women Finish Rich by David Bach (2002, Broadway Books)
An excellent guide to getting your finances in order. Only drawback, David Bach’s writing style can be a little annoying and the book is written for an American audience (no Australian edition available at this point).
The Wealthy Barber: Everyone’s Commonsense Guide to Becoming Financially Independent by David Chilton (1997, Crown Publishing Group)
One of the biggest-selling financial-planning books ever, it’s in storybook format and is easy to read. A little corny, but the messages are clear and can have a big impact.
The Barefoot Investor by Scott Pape (2007, Pluto Press Australia)
A great guide for those new to investing written by stockbroker and Herald Sun columnist Scott Pape. It’s fun, offers lots of no-nonsense tips and will definitely get you thinking about your next financial moves…
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