Let’s face it 2020 was our annus horribilus, but 2021 is shaping up to be a better year. So how can you ensure you start the year in good stead? These five tips should help you form good money habits for the year ahead.
Put an end to debt
With COVID-19 tightening many Australians’ purse strings, millions of us have cut up our credit cards and opted to move towards a life without debt. What other steps can we take to be debt-free?
First you need to uncover an accurate picture of your debt. So, gather together all your bills and statements, get online, grab your credit score, and organise to get a copy of your credit report. This will allow you to see the actual shape of your finances. Arrmed with a clear understanding for what you owe you ‘ll be able to eliminate debt.
- Total all your debts together
- Work out how much you will need to pay to finalise all your debts in the next three years.
- Do a balance transfer or swap to a lower-rate credit card to reduce the interest payable.
- Consider consolidating your debt.
- Pay off more than the minimum.
Following the above steps could help you reduce your debt significantly. If you need further incentive, it’s worth knowing you are not alone in trying to curb your debt. In October 2020, the Reserve Bank showed that Australia’s credit and card-charge balances stood at $37.8 billion. While this is a significant amount, it’s crucial to understand it’s a drop of $11.7 billion from the same time in 2019. So well done to everyone that has been paying down their debt.
Have a budget
If you don’t understand where your money goes, it isn’t easy to manage your spending. Good money management relies on a budget. How much money are you spending versus the amount of money you have coming in? No idea? Then it’s time to take note. Suppose your money flies out of your bank account as soon as payday hits. In that case, it is worthwhile keeping a spending diary to see where you are frittering away your cash. Keep your spending journal for a month or more, if you can, to get an accurate picture of your spending habits. Be ruthless. Write down every purchase you make, regardless of the size. Once you know how you spend your money, it’s easier to see opportunities to make cutbacks to save.
Set savings goals
Having both short term and long-term savings goals is a great way to keep motivated. Write down your financial goals for 2021. Create a vision board for inspiration. Then prioritise your goals and make a plan for how you can achieve them. Investigate savings accounts to find the best interest rate. Be sure to check conditions as some accounts may have criteria to earn the advertised rate.
Once you’ve got them onto paper, you can divide them into short and longer goals and start prioritising which one’s you’d like to work towards first. If you have long term savings goals, it could be worth contacting a financial adviser to develop a strategy to increase your long-term wealth.