New year, new approach – getting your finances in shape 

Before setting new goals, you should have a clear picture – based on real numbers – of your financial position. Do an analysis of your current situation by listing all sources of income and any regular expenses, including bills, insurances, subscriptions, groceries and discretionary spending.

An easy way to do this is to download bank and credit card statements to see where your money goes. Be warned – you may be in for a rude shock!

Creating a simple spreadsheet, or using one of the many budgeting apps that are available online, allows you to visualise your spending habits. With a genuine understanding of your finances, you can make informed choices and adjustments that align with your lifestyle, career and family priorities.

A budget is only a useful tool if it is realistic, rather than just a pipe dream. Again, online budgeting apps can simplify the task and ensure you cover all angles.

Start by defining your income (after tax) and monthly essentials – such as rent, or mortgage; utilities (gas, electricity, water and telecommunications), groceries; and transportation costs (including car registration and public transport). Make sure you set aside money for savings and debt repayments, and then set limits for discretionary spending.

Here are some broad budget categories to consider:

• entertainment and holidays
• takeaway food, and dining out
• fitness and sporting activities
• family costs such as childcare and school fees
• medical costs and insurance
• car repairs and maintenance
• pet expenses.

Do not forget debts such as personal-loan and credit-card payments. In setting budgets, some people find the 50/30/20 rule helpful: 50% for needs, 30% for wants, and 20% for savings or debt reduction.

Credit card debt is often the most expensive debt burden you will carry.Prioritise paying off these cards, including by paying more than the minimum monthly repayment amount if possible.

Common strategies to tackle credit card debt include the ‘snowball method’, whereby you pay off the smallest balance first to gain momentum; and the ‘avalanche method’, whereby you target the highest interest rate first to save more overall.

If high interest rates are holding you back, consider consolidating your debt into a lower-rate personal loan, or switching to a 0% interest balance card (but only if you can pay it off within the promotional period).

Some other easy debt-cutting moves can be made. For example, consider cancelling unused streaming-service subscriptions, renegotiate your phone and insurance plans, and shop around for the best utilities deals. Small changes can free up cash for debt repayments, or savings.

Before making any significant financial decisions, it is recommended to consult with an accountant, or a qualified financial adviser.

Superannuation is the gift that keeps giving – if you have it properly set up. Pay close attention to fees and consider your contribution options. If you are still working, make sure your employer is meeting all super payment obligations.

You should also check if you have any lost super by contacting the Australian Taxation Office’s support services, or directly through a myGov account. If you do find some hidden gold, it may be worth consolidating multiple super funds into one fund – this can potentially lower overall fees and allow your investment pool to grow faster. 

Anyone who has managed money knows there will always be unexpected expenses that throw a spanner in the works for budgeting, including car repairs or medical bills. So, after paying off your credit cards and any other high-interest debt, set about creating an emergency fund. Aim for three to six months’ worth of expenses, and keep it in an accessible savings account.

Setting and forgetting investments is one strategy. However, retirees, who may have a more stable financial situation than younger investors, could consider assessing their asset allocations on a regular basis with the help of their financial advisers. Experienced advisers can offer an informed view on market trends and how investments can be split among equities, fixed income, cash and other asset types. 

Financial discipline is often easier when it is tied to specific goals – such as saving for a holiday, or a mortgage deposit. Check out your accounts and funds regularly and acknowledge small financial victories as they occur.

Remember that prioritising regular catch-ups with your financial adviser is a wise move – they can help you stay focused financially and keep you on track to achieve your financial goals.

To see how you can budget for life and retirement goals, speak to your Mercer Financial Adviser.