Even though your financial strategy should be for the long term, there are things you can do each day to help you achieve your goals sooner. Here are five to get you started.
When we consider our financial goals, we tend to think of them as things that will happen at some distant point in the future. Since our goals are such a long way off, it’s easy to ignore them in our day-to-day life.
But instead of thinking about where your finances will be down the track, have you thought about the little things you can do today, tomorrow and next week to reach your goals sooner? If you take action each day, before you know it the results will speak for themselves. You’ll also get a sense of achievement in knowing that every day you’re making a positive difference to your future.
Here are five simple ways you can make today count, so you can begin 2017 on the right foot.
1. I will pay off my debts
If you’re juggling a mortgage and credit cards, plus other debts like a car loan or personal loan, you probably feel like most of your income is being swallowed up by interest payments. But don’t despair: here’s what you can do right now to knock your debt on the head once and for all.
Take a few minutes to write a list of all your debt amounts and their interest rates. Then, reorder the list, putting the debt with the highest interest rate at the top. This is the one you should focus on paying off first, so you can minimise the amount of interest you’re adding to your debt. You might also want to consolidate all your credit card debts on a single card that offers the lowest interest rate.
Where you have some debt that is tax-deductible and some hat is non-tax deductible, paying off the non-tax deductibledebt first can also help to save you tax.
If you have a home loan, chances are you’re expecting it to take years or even decades to pay off. But remember, every bit extra you put into it now will help you pay it off sooner. And whenever you chip away at the principal amount, it also reduces the interest you have to repay.
ASIC’s Mortgage Calculator at www.moneysmart.gov.au is a handy online tool that shows how many months or years you could slash off your home loan, simply by changing the amount or frequency of your repayments.
2. I will start saving
If you’re living from one pay cheque to the next just to keep up with bills and household expenses, the idea of a long-term savings strategy can seem a bit out of reach. But here’s the secret to saving: every little amount adds up. That’s why you should start saving today – it might even be easier than you think
First up, ask yourself: do you know where all your cash is going? If the answer is no, then it’s time to take control of your cash flow by creating a budget and sticking to it. For the next month, keep a record of everything you spend each day. You might be surprised at how much the little things can add up over time. Then, think about how you can make some cuts. For example, you could ditch your morning coffee or take a packed lunch to work each day. With simple measures like these, another month down the track you’ll have a decent amount of surplus cash that you can put straight into a high-interest savings account.
3. I will take control of my investments
A long-term investment strategy is the best way to build wealth for the future. The longer you have to invest, the more time you have to ride out any dips in the market that could otherwise put a dent in your returns. That’s why it’s a good idea to build your investment portfolio as soon as possible – your future self will thank you.
If your investment goal is still quite a way off, you might want to invest in high-growth assets that will potentially give you higher returns over time. A simple way to take charge of your investments today is to take a look at how your super is currently invested. If you’re using your super fund’s default investment mix, it may not be the best option for you. Instead, you might want to make some adjustments so that your investments are more in line with your stage of life and your future income needs.
If you’re in doubt, ask your financial adviser to create an investment strategy that will allow you to achieve all your lifestyle goals.
4. I will protect what I love
Insurance may not be something you think about on a daily basis, especially if you’re young and healthy. But the reality is that we never know when life will throw us a curve ball, so it makes sense to have a financial safety net in place. And even if you have personal insurance already, do you have the right levels of cover to take care of all your family’s needs?
For example, research shows that parents with two dependent children need an average of $680,000 in life insurance – but the typical default cover from a super fund is only worth about $200,000.1 So if you’re relying on your fund’s default cover, it might not be enough to maintain your family’s lifestyle if you passed away. Or even if you became sick or injured and couldn’t work for a while, would you and your loved ones struggle to make ends meet?
Working out how much cover you need can be complicated, so be sure to ask your financial adviser to guide you. But you can get started today by thinking about this question: If something happened to you, how much money would your loved ones need to be able to pay off your debts, protect their standard of living and prepare for the future?
5. I will boost my super
Your super has the potential to become one of your most valuable assets. The more you put into it now, the more you’ll get out of it when it’s time to retire – especially when you consider how your earnings compound over time. Here’s what you can do right now to help grow your nest egg.
First, make sure you only have one super account, (unless there’s a specific reason why you need multiple accounts). If you’ve changed employers over the years you might have ended up with multiple accounts in different super funds – which are all charging you fees. So choose your preferred fund and then ask them to track down all your lost super and roll it over into a single account.
Next, provided it’s right for your circumstances, you could talk to your employer about setting up a salary sacrificing arrangement so you can put some of your pre-tax dollars straight into super. Using ASIC’s Superannuation Calculator at www.moneysmart.gov.au you can see how even a small contribution on a regular basis can make a big difference at retirement. For example, if you’re aged 35 and earn $70,000 a year, salary sacrificing just $50 a week could add up to an extra $73,000 or more by the time you retire.2
How your financial adviser can help
No matter what financial position you’re in, there are plenty of things you can do today to start building the future you want. But the most important one is to talk to your financial adviser. With their experience and expertise, your adviser is in the best position to guide you at each stage of your financial journey.
As well as helping you create a long-time financial strategy, your financial adviser will show how you can break it up into small, achievable milestones. Not only will this be easier to track your progress, it will also give you a clearer idea of what youcan do to make each day count.
1 Rice Warner, 2015. Australia’s persistent life underinsurance gap.
2 Calculated using the MoneySmart Superannuation Calculator. Assuming an investment return of 5.7% pa and a retirement age of 67.