Updated: May 18
1. Prepare an honest budget
The most empowering thing you can do financially is know exactly what it costs you to live your basic life. Using budget tools, such as ASIC’s Money Planner, you can see exactly how much money you will have left over to spend on discretionary items (the ‘fun stuff’) and how much you can save for your long-term goals.
Once you subtract your basic living costs from your net income, the money you have left over (call it your surplus) can be allocated towards both the discretionary items and the long term investments.
2. Build a safety net
Once you have your surplus amount – set aside 20% for a safety net buffer and keep going until you have accumulated 4 weeks of your net weekly income.
Eg. If you earn $1,000 after tax each week, keep setting aside 20% of your surplus into a high interest savings account until you get to $4,000 – best to be with another bank so you can’t keep keeping on the balance. Then allocate 20% back to the fun stuff. Try not to touch the $4,000 unless it’s an emergency. If you do, set back up the 20% discipline until you replenish this.
3. Have some fun + set some goals
Allocate half of your remaining 80% surplus (40% 😊) towards discretionary spending and enjoy every little bit of it each week – don’t feel bad, it’s designed for you live it up a little.
With the other 40% you can then start to dream big – what are some medium to long term goals you might have? An overseas holiday? Deposit for a home? Retire early? Maybe you need to break this 40% up across a number of different goals. Once you have a decent amount set side in this area, there may be investment options you can explore.
4. Insure yourself
While we are working and the money rolls in, life is dandy. But what if we were to unexpectedly become sick or injured and we couldn’t work for an extended period of time?
Most people have sick leave that might stretch to a week or even a month but if you couldn’t work for 6 months – or a year, this could be financially devastating. Income protection insurance is a great way to protect your self and most people don’t realise that they can often fund this through their superannuation fund. There is a wide range of policies however so getting advice in this area may help.
5. Sort out your retirement nest egg (Super)
For the vast majority of Australian’s, superannuation will form the bulk of your retirement nest egg and therefore determine the lifestyle you will have on these years. Ensuring that you have one quality fund, where all of your super is consolidated, can save people thousands of dollars over their lifetime. Ensuring that it is invested well and at a low cost is also vital to ensure you’re making the most of this. You’re forced to have super, so you may as well engage with it and get it sorted out. 2019 is your year! Gaining advice in this area can also be helpful.
Give it a go in 2019 and see if this turns out to be your best financial year yet!!
PS. Be really careful with personal debts. If you have credit cards and personal loans, try your best to pay these off by focussing on them first. And don’t get any more. If your following steps 1-3 you shouldn’t need them. They only serve to make a profit for banks and to entrap you.
If you would like to discuss your personal situation, we’d love to hear from you!
*Please note that the information provided is of a general nature only and has not been tailored to your personal circumstances. Please seek professional advice prior to acting on this information.