Make 2013 the year you really start getting money wise.
As the holiday season draws to a close and the New Year begins, it’s time to start thinking ahead and get organised for the year to come.
Here are 10 personal finance checks you can cover off that will put you in a better financial position now and in the future:
1. Credit card debt
Many of us splashed out slightly beyond our means on Christmas gifts and summer holiday expenses, and why not – it only comes around once a year – but if you’ve now got credit card debt to contend with then there’s only one good way to tackle it, head on.
Carrying credit card debt is one of the most expensive loans you can have, with credit cards charging up to 21% p.a. on any amount owing. If you have multiple cards then make sure to pay off the one with the highest interest rate first.
Set up a payback plan by dividing the amount you owe into manageable packets and try to get the whole amount repaid in less than four months. Create a reminder in your phone or calendar on the day you get paid so that it’s the first expense that is made after pay day.
2. Debt consolidation
If you’ve just calculated your debt vs. your income and you’re completely overwhelmed, don’t panic. And definitely don’t shy away from the problem.
You could benefit by totaling all your debts from credit cards, store cards, car loans etc into one, easily managed, low rate personal loan. That way you’re only paying one lump-sum each month towards all your debts at a low interest rate, and keep the payments consistent you know you’ll be able to chip away at it each month until it’s gone.
One way of doing it this is to apply for a credit card which is offering a short term 0% p.a. rate on any transferred debt balances for six to twelve months. This will enable you to transfer your current debts to the new credit card account and pay it off without incurring any interest during the honeymoon period. To so this successfully you need to set up a payment plan and make sure not to make ANY new purchases with the new card! Cut it up so you’re not tempted. HSBC platinum card is currently offering 0% p.a. on transferred debt for up to 6 months.
Another way you can consolidate debts is to apply for a fixed rate personal loan that will charge only 10% - 15% on debts instead of riding debt on your credit cards. By choosing a fixed rate personal loan you’ll be able to make the same repayment amount each month until the loan term is over, which makes it much easier to budget your expenses when knowing exactly what is due ahead of each repayment day.
3. Savings plan
You may be lucky enough not have any debts. In that case, ask yourself; what is your surplus savings doing for you? If you don’t have your surplus savings in a high rate account which pays you to save, then you’re missing out big time.
High rate online savings accounts are completely free of fees, with no minimums, you can put $1 or $100,000 into it and they’ll pay you up to 5.1% p.a. interest into your account on a monthly basis.
Say you started off with $1,500 in your account, and via direct debit you deposit $200 a week into it. Because of compound interest, by next Christmas you’ll not only have been paid close to $350 in interest but you’ll also have saved close to $12,000!
Compare all high savings account rates at Moneyhound now.
4. Home loan offset
If you have a variable rate home loan, then one of the easiest ways to save thousands of dollars is to link the home loan account to an offset account. Ask your current lender to help you set up this feature, and if they won’t do it then consider moving your loan to an institution that does.
An offset account is just like a transaction account, but any money in it is ‘offset’ against what you owe on the mortgage. For instance, say you get paid $4,000 a month but you pay $2,000 of that to your home loan. You might use the other $2,000 for household expenses during the month, but whilst the funds are in the offset account it’s actually attributed towards the home loan, so the interest charged on your home loan is less whilst your ‘expenses’ funds are sitting in the offset account.
As an example calculation, if you had $10,000 sitting in an offset account for the life of a $320,000 home loan, you would save around $46,000 in interest and pay off your loan around 18 months sooner (calculated on 7 per cent interest over a 25-year loan).
Getting your tax organised is not as daunting as it seems. If you’re unsure where to start then it might be worth seeing a tax consultant like H&R Block.
If you earn less than $35,000 in one financial year then you’re likely to get some of your PAYG tax paid back to you from the government, so it’s worth looking into. Plus it’s a legal requirement to lodge your tax with the ATO each year.
Any expenses you’ve incurred during the financial year which you’ve had to make as a direct result of your employment are called tax deductions, which means you’re income tax can be reduced if you claim these expenses at tax time.
For this reason it’s important to keep all your receipts for expenses that relate to work like; uniforms, tools, mobile phone bills, computer equipment, internet usage, taxi rides, client lunch meetings etc.
If you’re hopeless with keeping receipts then take a photo of each receipt with your camera phone as and when the expense occurs so you can tally them all up at tax time, or keep a log of them on an excel spreadsheet.
Many of us don’t think about our superannuation accounts apart from when we receive an annual statement. Getting your superannuation right at an early age could mean the difference between a comfortable retirement filled with overseas holiday’s verses living in a caravan park and relying on the dole to get by.
First of all, if you worked multiple jobs in your early years you could have a number of superannuation accounts each with funds in them that you don’t know about. The first step to organising your super is to amalgamate multiple or lost super accounts into one. Using your tax file number, the government offers a service called SuperSeeker that can search for any of your lost super accounts.
Secondly, you don’t have to use the Super Fund that is nominated by your employer. You can choose any fund you want. So wise up and start comparing them. You want one that offers steady returns with minimal fees.
Super funds will find all sorts of ways to charge you for their services from monthly management fees (up to $10 a month) to contribution fees (up to 5% of all deposits), and or commissions on earnings made from investing the funds, so don’t let your hard earned money get eaten away by account keeping fees.
It’s really up to you how want to invest your superannuation. Via a super fund you can usually choose between low risk but low returning investment options, or high risk but high returning investment options. If you’re young you’ve got the means to bounce back from high risk investment options that might have gone sour, but if you’re nearing retirement you might choose more low risk options.
7. DIY renovations
Your home is one of the best investments you have, because you don’t have to pay any capital gains tax on the appreciation in the value of your house between the day you bought it and the day you sell it. For this reason, it makes financial sense to try and add as much value to your home as you can, for as little cost as possible.
Think about things you can do this year own that will add value to your home. For instance create extra storage space in the garage or the attic, clean up the garden beds or build a veggi patch. A fresh coat of paint or a new front fence can go a long way towards upping the value of your home.
If you’re thinking of more extreme renovations like an extra room, bathroom or a new kitchen then find out if you can redraw on your current home loan to finance the project.
8. Investment property
Current low interest rates for property-investment loans make getting into the property market much more affordable and then it was a few years ago.
Buying a unit and renting it out is a good way to build wealth, but only if property appreciates in value over time by more than costs involved in owing it such as; stamp duty, strata fees, council rates, insurance, water rates, interest on the loan, any renovations or fixes, selling fees and then tax charged on any capital gains.
Whilst you own the investment, if your expenses on the property outweigh the income you’re earning from it (in rental payments), then your loss on the investment is tax deductible, which means you’ll get an income tax concession (or a tax return) after you lodge your tax return claim. This is referred to as negative gearing.
9. Compare utility rates
When was the last time you compared your gas and electricity costs with other suppliers that service your post code? Many people don’t bother to think about this unless their moving house. Easy savings can be made if you take your latest gas or electricity bill and compare your current provider’s electricity prices with others.
Moneyhound makes this so easy to do and it’s absolutely free. Start here by entering your postcode. If you find a cheaper electricity and gas supplier then you just have to fill out the application form, and our 3rd party partner (Switchwise) will organise the electricity switch for you, for free.
As well as switching suppliers, you could start some new energy saving habits this year that will reduce your power bills by using appliances during off peak times and potentially switching to gas or solar for your hot water needs.
Related: 50 Ways to reduce your power bills
10. Household or personal budget
The best way to really organise and manage your money is to do a budget.
That way, you can clearly see where your money is coming from and going to, and then you can set yourself boundaries for all your expenses so that your savings goals are more easily achieved.
Government website MoneySmart offers an online budget planner for free.
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