If 2020 taught us anything, it’s that it’s important to hit refresh on your finances and have some savings set aside for emergencies. With JobKeeper ending, having a financial buffer in case of snap lockdowns is crucial. According to research 85 per cent of Australians live from payday to payday, and if you’re sick of being in a money rut, there’s no time like the present to get a jump start on your savings.
Here's how to restart your savings and set financial goals.
1. Knowledge Is Power
There’s a misperception that you need to be rich these days to have savings. 100% not true, you simply need to be aware of the financial strategies available to you to generate savings and create wealth. Whether you read books by renowned financial experts, listen to podcasts or make an appointment with an investment strategist, knowledge is power. A financial advisor can help you create achievable goals and a plan of attack based on your individual circumstances.
2. Understand Your Current Financial Situation
If you don’t understand where you are financially, how can you refresh your finances and make a jump start on your savings? Seeing your financial status in black and white can make things seem a little overwhelming but it gives you a starting point. In 3-6 months from now when you look at where you were, you’ll be able to celebrate the improvements. Note down all your incomings—salary, extra money from side hustles, any income from investment properties and compare them with your outgoings. Be honest about your spending habits and accumulated debt (including the ones you’ve been keeping quiet from your partner). Lay it all out on the table so you know exactly what you’re dealing with.
3. Set Up SMART Financial Goals
SMART stands for Specific, Measurable, Attainable, Relevant and Timely and is a global acronym used to focus your efforts and boost the chances of you achieving your financial goals. For example:
Specific: “I want to be rich,” isn’t enough of a money-setting goal. It needs to be specific. I want to save for a deposit on a house or I want to have enough money to take a year off and travel Australia.
Measurable: Attribute a money value to your goal such as “I need $25,000 for a home loan” or “I need to save $50,000 to cover my wages for a year while I travel.”
Attainable: If you’re a one-income family, there’s no point setting sky-high goals like wanting to save $100,000 in a year. The goals need to be attainable based on your financial situation.
Relevant: Make your financial goals something that you’re excited about achieving. This will help you focus your efforts. Saving for retirement sounds like a smart goal, but if you’re still at university, or starting a family it seems like light-years away (it’s not). How inspired are you going to be to stick to your budget? Make your financial goals relevant—holidays, investment property, paying off your mortgage faster.
Timely: Set realistic deadlines. If you’ve set yourself a goal of saving $25,000 but don’t have a deadline to achieve your goal, you’ll just keep pushing out the end date and in 10 years from now you’ll still be trying to reach your target.
4. Set Up Salary Sacrificing
Salary sacrificeing is sometimes referred to as remuneration or salary package and if structured correctly, can minimise tax and generate savings. A portion of your wages is withheld by your employer and it can be added to your super fund, used to pay off a loan or even home loan or rent. Before you talk to your employer and come to an agreement, it’s a good idea to talk to a financial advisor so that any salary sacrificing works in your favour instead of being a tax liability.
5. Talk To A Financial Advisor
If budgeting and saving is not your strong point, make an appointment with a financial advisor to help you structure goals, discuss ways to offset your mortgage and maximise your savings. You may be entitled to government initiatives or tax subsidies you didn’t even know about. It’s never too late to get financial help.
Now here's five things a personal finance trainer wants you to know.
Design credit: Juliette Davies
Gerry Incollingo is the Managing Director of LCI Partners in 1998, an established accounting, finance and legal firm based in Parramatta. Since that time, the firm has expanded with six divisions and is now based in Sydney, Parramatta, and southern Sydney.