Coming towards the end of the year our thoughts often go towards new year resolutions. This year finances are top of mind for many of us with job changes, Covid uncertainty and the rising cost of living in many parts of the world. We spoke to Gerry Incogillo from LCI Partners for his tips on healthy finance habits heading in to the new year.
If the last two years have taught us anything, it’s that getting on top of your finances is a good priority to have as you never know when an unforeseen circumstance will arise. With that in mind, here are some of my top financial resolution suggestions, all of which will help you get on top of your finances.
Learn to Budget
Whether you live week to week or not, it is always a good idea to have a budget in mind so that you can put some money aside to later invest or go on a dream trip.
There are lots of ways to budget, but a simple option would be to follow with 50/30/20 method. That is 50% of your wage goes towards the essentials such as rent, electricity bill and food. 30% goes toward entertainment and the things you want. The final 20% is then either saved or used to pay off debt. This is a good strategy for helping you build up your rainy day fund.
Maximise Your Rainy Day Fund
Since you are saving, you may as well make the most of the opportunity by finding an account that offers a good interest rate. Shop around to find the best interest rate for you.
You may even look to put it into a long term investment account which often attracts higher interest rates, however the catch is that you usually need to commit to a 6-month period of not touching the money. If you don’t think you will need that money for 6-months, it could be a good option.
I always recommend that you have some cash on hand, ideally $10-20K for emergencies, however once you have saved that much, consider investing some of your savings above this amount into shares, property bonds, long term interest accounts etc.
These options all have a good chance of maximising your savings. Seek out a financial advisor before you choose an option as you want to make sure you choose a safe option if investing is not something you are very confident with.
Keep An Eye on Your Direct Debits
Get in the habit of checking your direct debits every quarter, you would be surprised how many things you may be getting charged for that you may have forgotten about. With the rise of smart phones and apps, there are a lot of sneaky ways that people can get you on a membership that may easily be forgotten about.
Try out a Micros Investing App
Many of us understand how a piggy bank works, now there is a digital version, and that is in the form of micro investing apps. Apps, such as Raiz, essentially round up your transactions to the nearest dollar and save and invest the difference.
So if you spend 80 cents, it will pull out 20 cents and invest it for you. It’s a great way to make the most of what would have been change if you were paying cash. Over time, if you set and forget it, you may be surprised with how much your spare change has accumulated over the years.
Pay off or Reduce Your Debt
Too many Australians have excessive credit card debt which is stopping them from getting ahead. Make 2022 the year that you try to purchase the items that you need with savings and you pay off your debt.
With credit card debt comes interest repayments which means you are spending much more for each item that you would have otherwise. Get out of the habit of using the credit card or Afterpay unless it is an emergency situation.
Gerry Incollingo is the Managing Partner of LCI Partners, a firm that specialises in accounting advisory, lending, wealth, property, insurance and legal.