Are you stuck in a financial rut? If you are finding yourself hovering around in the same place financially and seeing little prospect of getting ahead or amassing any significant wealth or even putting your finances on a better footing, you are not alone. You are part of a large group of battlers who live from pay check to pay check and seem stuck in a vicious cycle of financial insecurity.
Battlers are weighed down by a number of factors including slow wage growth, high cost of housing, high cost of living and in some cases, poor financial choices. Sometimes, even with fairly prudent financial choices, you might still find yourself grappling with incessant financial stress that keeps you stuck in the same place.
An estimated one in three Australians feels “uncomfortable” with their current financial position. Some one in three do not save anything while one in four Australians are currently saving less than a tenth of their after-tax income. These statistics paint a bleak picture of the pinch that many everyday Australians feel with regard to their financial position. But is there a way one get ahead financially on an average income? Here is a look at some of the ways in which financial battlers can gradually improve their financial position.
Set Goals and Budget
Goal-setting and budgeting isn’t always a fun and exciting prospect for most people but it is the most logical first step that you should take in order to begin reining in your finances.
Having a written budget gives you an insight into your long term and short term financial inflows and outflows. It helps you keep a watch on your expenses and savings. When planning or goal-setting, it is advisable to include your short-term goals as well as the aspirational long term goals and put in place a mechanism for realizing these goals.
Budgeting helps you figure out where the money is going over a given period of time. That can prove to be a useful insight where you wish to prioritize your living expenses.
Track Your Spending
Start tracking your spending closely and you may just discover a few things that are gobbling up your money and which you don’t necessarily need. To put your finances on a surer footing, you need to stop impulse buying and spending your money on the things that you don’t use. Cutting these off your future expenses may result in a sizeable financial windfall, helping you save a lot more money that could have otherwise gone down the drain in a cycle of consumerism.
When spending your money, you should always pursue savings at all points. There is always a more affordable option so you will need to ask yourself whether you really need a costly luxury item when you can make do with a cheaper version.
In tandem with tracking and monitoring your expenditures, you should also start practicing an aggressive money saving strategy. Take time every month to go through your credit card statements so you can see where you can make some savings. There is a little mental trick that always works with money. Let’s call it out of sight out of mind. When you are no longer able to access certain finances, you will automatically adjust your lifestyle to do with less.
Manage high interest debts first
While debt is inevitable, high interest debt is going to seriously mess up your finances and deplete your savings. When managing your debt, start by paying off the high interest debt first before you turn your attention to the low interest debt obligations.
The highest interest debts are usually the credit card debts where interest rate scan be as high as 20% or more per year.
When you are done with the highest interest rate debts, move onto the second highest interest rate debts such as cars and personal loans. Move deliberately until you are left with low interest and tax-deductible debts such as mortgages for which you can claim some tax deductions brush off some of the financial pressures.
Maximize on super incentives
If you are employed, your employer is already contributing to your retirement via the superannuation guarantee. However, you can boost your super balances with strategies such as salary-sacrificing.
You can also consolidate your super funds in order to save on the fixed costs. Every super fund has fixed costs and if you are contributing to multiple funds, you will have to foot multiple fixed costs. With a single fund, you only have to pay a single fixed cost.
If you are still young, you can also go for a more aggressive investment strategy for your super fund because at this age, you can afford to run a marathon race and ride out the short term investment market fluctuations.
Over the long term, you will have more in your super account balance if you pursue an aggressive investment strategy than someone who is more conservative in their investment approach.
Own your home
To be financially secure, work on owning your home. There are many financial benefits that come with owning your abode. As an investment, the home is often the ultimate wealth builder. Home prices often rise over the long term so you will always sell for a handsome profit should you decide to dispose of the home in the future.
Homes are also given special tax treatment by the ATO and under the social security rules. You won’t pay a capital gains tax (CGT) when you sell your primary home and the home is also excluded from the assets test in the calculation of the age pension. The main bottleneck faced by many Aussies is saving money for the deposit but there are financial tools such as the First Home Super Saver Scheme that you can use to accelerate savings for your first home. Also, avoid being picky when it comes to buying your first home.
Use mortgage offset accounts
A mortgage offset account is a transaction account that is tied up to your mortgage. When used prudently, a mortgage offset account can be an effective way for saving money on the mortgage interest.
The balance of funds in the offset account is deducted from the balance owing on your mortgage for the purpose of determining the interest on the mortgage payments. The money in the mortgage offset account can be withdrawn at any time so you need to be disciplined in how you manage this fund since the mortgage still needs to be paid up.
Ditch your car
A car might be a necessity but it is also a huge expense. The regular car expenses usually add up to a huge amount that leaves a gaping hole in your finances every year. If you live where there is good transportation and probably don’t have kids, you can afford to ditch a car and use the public transportation to save money. You can also use ride-share or car rental services for trips or errands where you will need to use a car.
Be a savvy shopper
The amount of money that we leave on the table when we fail to shop around for cheaper options is simply mindboggling. Take time to shop for the best deals on financial products such as insurance and credit cards and you are likely to amass significant savings over the long term. This should also go to other expenses such as mortgages and utilities. Always look for the best deals in the market for recurrent expenses.