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Transforming your finances
16May/2018

Transforming your finances

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BY JONATHAN LEE

Data from Mortgage Choice’s Evolving Great Australian Dream Whitepaper found 48.6% of Australians worry about their finances at least once a week. And while it is not uncommon to worry about your finances, stressing about money is obviously not how you wish to spend your free time.

Thankfully, there are a few things everyone can do to transform their financial situation.

By transforming your finances, you can effectively spend less time worrying about your money and more time enjoying the things that matter – like that next core workout.

So, what are some of the steps you can take to help improve your finances?

Step 1: Review your partnerships

When training our bodies, we often get the best results when we team up with like-minded individuals. Well, the same goes for our lender relationships.  

By teaming up with the right lending institutions, we can ultimately put ourselves in a better financial position over the short, medium and longer term.

If you want to transform your financial situation, the first thing you should do is re-evaluate the relationship you have with your lender.

To re-evaluate your lender relationship, simply get online and do your research. Find out whether you are getting the best deal available or whether there is another lender that can offer you a better and more competitive financial solution for your needs.  Australia’s lenders are hungry for business at the moment, so many are offering cash and other incentives for new-to-bank customers.  You may find that by switching lenders you are able to save more money and get the money you do have to work harder.

Step 2: Consider the sacrifice

In the gym, pain equals gain. You won’t get the results you are after unless you are willing to put in the extra effort. And the same can be said for your finances. Sometimes, to achieve the best results, we have to be willing to put in more at the beginning. Making salary sacrificed super contributions offers a simple way to save on tax and build wealth. It involves having part of your before-tax salary paid into your super rather than taking the money as cash in hand.  These contributions are taxed at 15%, which is likely to be below your marginal tax rate (which could be as high as 46.5%), so more of your money goes towards growing your super rather than paying the tax man. While it may seem hard at first to give up some of your salary now for future (retirement) gain, the reward will eventually be worth the effort.

Step 3:  Maximise all refunds/bonuses

If you receive a substantial tax refund or a good End of Financial Year bonus, it pays to invest this money wisely. Using the refund and/or bonus to reduce your debt can help you considerably with your future endeavours – including homeownership. The reality is, having too much debt can make a difference when it comes time to apply for a home loan. Alternatively, you can transfer your tax refund into a high-interest savings account. Whether you are saving up for a new car or a deposit to buy your first house, this lump sum injection will help speed up the process. Once the cash is in your savings account, leave the money untouched and watch the interest add up.

Step 4: Do your reps

When we train our bodies, the best way to achieve the desired results is by doing plenty of reps. And when it comes to our finances, just like our training, repetition is key.

Where possible, it is a good idea to be repetitive with all of your good financial behaviours. If you want to save money, don’t just put $100 into a separate savings account once, do it repetitively and save $100 every single week. Similarly, don’t just pay your bills (like your credit card) when you get the reminder once a month. Where possible, pay off your debt in full each month on the exact same date.

The latest data from Mortgage Choice found 1 in 3 Australians with a credit card currently owe $5,000 or more. Not only are the interest rates on credit cards notoriously high, but many people get stuck using a credit card because they can’t break the cycle as interest continues to accrue. If you have a credit card, pay it off in full each month.

By repeating good financial behaviour, you will present yourself as a responsible and reliable borrower – which will help you to ascertain finance if and when you need it in the future.

Step 5: Budget, budget, budget

While you may know what a budget is and how it may work, you may not realise how important and beneficial a budget can be when it comes to transforming your finances.

Creating a budget and taking an active interest in your personal income and expenses is often the first step in transforming your finances. Regardless of whether you are saving for something in particular, or would like to manage your finances more successfully, a budget can help.

One of the best ‘budget tools’ you can use is a spreadsheet. An excel spreadsheet will help you consolidate all your income and expenses in one place so that you can easily see where your money comes from and where it goes. Furthermore, a budget will help you see if you are spending/have spent too much in a particular area, providing you with the opportunity to cut-back.

If even after you have created a budget that documents your incomings and outgoings, you are having trouble managing your finances, you could try withdrawing and managing cash. At the beginning of each week, withdraw the amount of money you will need for the week ahead and then leave your EFTPOS card at home. By only spending the cash you have in your wallet, you should be able to budget more effectively.

While the above steps can help you to transform your finances, they won’t work without discipline. If you truly want to transform your finances and make your money work harder for you, discipline is essential. Most of the time, discipline is just an exercise of willpower and choosing to forego something we don’t really need.

In the same way that our fitness routine requires commitment and perseverance, so too does our ‘financial’ routine.  

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