How to manage your money
Your first payday. What will you blow it on? Macas run, video games, paintball? Getting our first paycheck is quite exhilarating, finally having the money to do what we want and not having to ask Mum or Dad. It’s fantastic! When we have this liberation and control, we forget to think ahead and instead spend carelessly, which is common. You should enjoy your money and treat yourself for your hard work while also managing it responsibly. After a month, if you start early with this knowledge, you will find yourself so far ahead of the life game, you will set yourself up to not worry about money.
The first thing you should be doing with your money is putting aside cash into an emergency account. This is in case something drastic happens and you need the money right away. A good target to aim for while you’re first saving for money is $1,000. A secure system for this is to put away 30% of each paycheck into this account. For example, if you earn $100 weekly, you would put away $30. Divide $1,000 by $30/week and you get 33 weeks until you reach your goal of $1,000, all while still having $2,300 in spending money. If 30% is unrealistic for you (small paycheck, big expenses), start with 5% and slowly work your way up until you find a comfortable medium. It’s mostly about getting into the habit of setting it aside and never touching it again, so you are always financially stable.
Being disciplined in saving a portion of your income can make the whole difference for your financial future. By starting this as soon as you can, you will find yourself ahead of other people. You will have taught yourself to live with less than you earn. The way most people operate is, when they earn money, they immediately look at what they can spend it on. Get disciplined! For further distribution, you will need to do it based on your goals, e.g., car savings, university, or holiday. For more details on savings, consider reading The Barefoot Investor by Scott Pape.
If you are earning over 18K a year, you will have to pay tax. What is tax? It helps a country function. We pay tax to maintain the many services the government provides, such as road works, charity funding, maintenance of land, and the funding for states and state government. Tax is collected from each taxpayer and distributed when the government has a new budget and direction for where the cashflow will go. If you want to get further information on how your government is spending your taxes, check out Australia’s budget website (budget.gov.au).
The payroll officer at your place of work will have it automatically calculated to take away your required tax out of your pay each week, so it’s not something you need to worry about paying personally. Your employer holds onto the tax taken from your pay and is required to pay it every three months to the government on your behalf. By the end of the year, you have received all your income, and you get a form from your employer called a group summary. This shows the amount you have earned for the year and the amount of tax you have paid. This should be accurate based on the payroll system being used. What you’ll find on most occasions is you paid over the amount you needed to in tax, so you are eligible for a tax return. Some other factors of tax payments include a HELP debt for financing university education, which the government takes back from your tax. Also, if you have a much higher earning week, based off that one week of pay, you are higher on the estimated annual tax bracket, so taxes are higher for that week even if you’re back to normal earnings following that. It just allows for a better tax return. If you are ever unsure or would like to know the amounts of superannuation you are being paid and the amount of tax being withheld beforehand, try using an online pay calculator to figure it out (I use paycalculator.com.au).
Saving is a huge benefit for those who can do it. It puts you in control of your financial future, and you are not easily manipulated by instant gratification, which is sweeping the world now with everything at our fingertips, so quick and easy to access. It takes mental strength and discipline to manage your funds and actions with advertising designed to make you spend. You will find the more quick-fix baubles and toys you put off now, the more harder-to-attain, long-term goals become easier to reach, and you will be more content with your life by achieving something lasting. Life is a long-term game, and realising it doesn’t come overnight will keep you happy. Enjoy the journey, and remember, every little thing you do each day counts towards what you will get in the future.
Money Tips:
Track Your Spending
Download a spending tracker app onto your phone. You add the income you earn each paycheck and put your expenses into a category. With this information, you will be able to monitor where the bulk of your money is being invested and see where you can make changes. Maybe you’re eating out a lot; instead, only go grocery shopping for the week and see your expenses lower and savings rise. This is a convenient tool when first getting an idea of where your money is going. You don’t even need to create a budget. Just look through the data you enter into your phone for one or two weeks or even a month, and you can see where you will need to make the adjustments to meet your savings goals. Make it a habit to review your spending at the end of each day so that you can see how you stack up against your weekly income earned.
Budgeting
When it comes to budgeting, people struggle to get their head around what they need to do and become intimidated. It doesn’t have to be that hard to follow and require you to glance at your bank account each day, hoping you scrape by. It’s a secure method of putting all your costs together and calculating what you need to have each week in order to cover them. Then calculate a savings account to put a portion of your pay in and anything else you may strive for. It’s as simple as:
• Ongoing costs (phone, rent, loan, bills) – 60% of income
• Savings – 10%
• Spending – 20%
• Holiday account – 10%
By following this simple rule of breaking up your weekly income, you have what you need to have in the allocated accounts. To make this even simpler, you should join a bank where you can create multiple accounts so that you can portion out this money and know how much exactly you will have to spend. The accounts and percentage portions are up to you, but it’s important to understand what your main bills are each week.
Pay Extra into Your Tax
A guaranteed $1,000 return halfway through the year is very exciting, and it is simple to save up. If you need to save up for a house deposit or a new car for the following year, this strategy may be a smart idea to get yourself prepared, if you choose to. As an employee, you can elect to pay extra tax out of your wages by speaking to your employer and filling out a form to permit them to do so. What that means is you are paying more than you owe in taxes to the government. The amount is your choice; one recommendation is $20, as it’s small and not as noticeable from your paycheck, but you can pay as much or as little as you like. Because this comes out of your pay before you get it, after a while, you don’t even notice, and it turns out to be a very handy tool if
you find it hard to save your money. You only get taxed on the bracket amount you fall in, so when it comes to the end of the financial year, you will get back your additional $20 weekly x 52 weeks = $1040, plus whatever tax that has been overpaid on or what you claimed back on, e.g., uniforms. Here are some examples of other amounts you can pay and the return you’ll receive:
Paid Weekly End-of-Year Return
$10 $520
$20 $1,040
$30 $1,560
$40 $2,080
Save 10% of Your Pay Each Week
Getting your pay in one lump sum can be so easy to burn through. You only take notice when you’re down to the last bit. As a rule, after building up that $1,000 emergency fund, set aside 10% of your pay into this account where it must not be touched. To have an account you’re growing is great for security if you need some money, or are saving up for something. Putting aside 10% is a small and very manageable feat, and it can add up quickly in terms of weeks and years, just like the paying extra tax trick. If you set up
an auto payment, it will make it less of a worry and an autonomous process that will benefit you in the future. As you can see below, it is only a small fraction to put away, but these little-by-little portions can add up to a bigger portion of finance. It’s about playing the long-term gain and being able to set aside that little bit for your future.
Paid Weekly Set Aside 10%
$100 $10
$200 $20
$300 $30
$500 $50
Setting Up Superannuation
A financial advisor is usually the one who would manage this set-up. Most of us don’t pay attention to our superannuation, as the employer handles it, but it is advantageous to look into it yourself to get the most out of your retirement. Most workplaces have a default superfund, so you may be restricted on changing to a fund with the better fees. The control you do have is how to set the investments.
When you have super, you automatically get stocks in the share market. This can influence the growth of the superannuation that is paid into it. By default, your super shares are set to be conservative balance, meaning risk is low but so is growth. If you are young, it is smart to set this at a higher risk setting so the growth chances are higher. While it’s possible to lose value, since you are young, your superannuation will recover in the long term and continue growing throughout your life. In a way, it’s free money for your retirement you didn’t even work for. It’s the knowledge that got you the extra value. If you wanted clarity, most financial advisors could give similar advice or set this up if you’re uncertain. Also, speak to the superannuation customer service itself on how to take these steps. Don’t forget about your superannuation because it can put you in a comfortable retirement when the time comes. Future-you will love you for thinking ahead and making the decisions thirty years prior.
Buying a Car on Finance vs. Savings
Say I want to buy a car that will cost me $5,000. I earn $150 p/w, and I live at home. I have $0 to my name, so I will start from nothing.
Doing some research, I find if I get a car loan next year, I would have three years of repayments with the usual interest on payments. After three years, it will cost me a total of $6,000. That’s $1,000 of fixed-cost interest. On top of that, I will have to pay insurance ($400) and registration ($550) each year.
However, if I put away $100 per week x 52 weeks = $5,200, I would own the car outright after a full year, I wouldn’t pay any interest, and that additional interest I would have paid on the finance loan would instead pay for registration and insurance for a full year. The more expensive the car, the higher your interest repayments will be, and you’ll find that one month of your paid instalments would be eaten completely by interest added on it.
The difference is clear and as big as that. If you put that money away with a goal, you’ll save yourself some losses, and you are debt-free for a longer period.
Don’t Get a Credit Card
These things are designed to keep you paying that little bit extra you don’t need to, and it adds up to be a whole lot extra over the time of owning a credit card. They offer rewards and all these programs to lure you in, but remember, with the interest they
charge, they are designed to make a profit for the banks. The cards are wired to keep you in debt.
It comes down to discipline. If you can’t afford it, you can’t have it. Save for it and attain over time. Interest is a premium cost for having things now, not later. It’s always ideal to live within your means by making a budget on what your necessities are. If you have money to spare, then you can enjoy yourself; if you can’t afford it, you must go without. It’s better to live being on top of your expenses than living a life with a cloud of debt over your head. Don’t put yourself into a losing game. A good trick is to get cash out weekly, and once that runs out, you can’t purchase anything extra.
House Saving Strategies
Houses are an exciting possession to own and live in, but a massive loan and commitment to handle. Many factors can get you turned down for a loan application, so it’s best to be prepared. You need good earning history, and a stable job is more likely to get you the loan—banks like certainty. When looking for a home, you should first pick your price range and play around on the mortgage calculators to find what you would be comfortable paying. It’s important to factor in your living expenses to see if your wage is sustainable. You need to have a fair range where you’ll still have excess money after everything is paid in your house so that you can continue saving up.
Once you’ve found your price range, it’s time to save! When saving for a deposit, shoot for 20% of the loan to decrease huge interest, show the bank that you can manage a good amount of money, and to lower your total repayments. Have an account and calculate what you’ll need to put away weekly to save this amount of money by yourself or as a couple. Allow one to two years to save this and avoid strain on yourself. For example:
Loan Total 20% Deposit Saving in Two Years
$300,000 $60,000 $577 per week
$200,000 $40,000 $385 per week
$150,000 $30,000 $289 per week
Saving as a single person on a full-time wage and living at home makes this very possible. As a couple, the target becomes so much easier by splitting the saving per week in half. Take advantage while you are living at home, and do not rush out to rent a home. Wouldn’t that rent money be better used for two years of weekly savings for your own home? Rent money doesn’t get you anywhere; it’s just a temporary solution that moves you nowhere. You’re paying the mortgage loan off for someone else each week, whereas you could save and open up that opportunity for yourself.
Eating Out vs. Grocery Purchasing
It’s too easy to zip through KFC or McDonald’s and get a greasy, satisfying feed for around $10. But not only is this unhealthy, it is also costly, and it adds well up above what it’d cost you to go grocery shopping and make your own.
Fast Food Store Grocery Shopping
Chicken burger & chips meal $12 Bag of potatoes $7
x 7 days/week Chicken burgers $10
Total: $84 Buns $5
Bag of salad $3
Tomatoes $3
Cheese $5
Oil $3
Electricity $10
Total: $46
Turn the potatoes into your own homemade chips and fry them along with the chicken burgers, and you’ve got a much more wholesome meal. What would originally cost you $12 is now only $6.57 per meal, almost a 50% saving. You could lower this further if you crumbed your own chicken breasts to make the burgers.
If you are going to get serious with saving, add up those costs. It’s fine to go out and enjoy yourself, but you must make these changes and sacrifices if you want to achieve financial goals and security. It would be much better for your health too.
Superannuation Salary Sacrifice
Saving for retirement is never top of mind until much later in life when you start to slow down and feel old! But if you choose to get a head start, it is ideal to start straight away. This simple method is sacrificing some of your income into superannuation. If your superannuation is already set to a high-growth, high-risk tolerance account, this becomes far more advantageous as you acquire more stocks, which can become far more profitable in the future. From an employer, you get paid 9.5% of what your wage is into your super if you’re over eighteen and earn over $450 a fortnight. What you can do to increase this is to work out your percentage on your wage of 2.5% and pay that additionally yourself. If you did this throughout your working lifetime, it would add a lot of value to your retirement.
Weekly Wage 2.5% Employer Contribution After 30 Years
$250 $6.25 $23.75 $46,800
$350 $8.75 $33.25 $65,520
$450 $11.25 $42.75 $84,240
As you can see, the superannuation can add up well, and in a high-growth super, you will multiply that value even further. You get access to this at the age of seventy, plus pension from the government. These additional funds from super are beneficial to make retirement as comfortable as it can be. It’s your decision whether you want to add further amounts onto your employer contribution or not, but even a small amount can make all the difference. Also, if it’s autonomous payments out of your pay, you can save yourself from paying extra tax to the government, and you won’t miss it as much if it was never in your bank in the first place.
Run Around Car vs. Sports Car
We’re all attracted to the fast, furious, glamourous look of a car. This can make us spend money and get loans on a shiny, expensive car that will cost a fortune on top of that to run. It’s a mistake a lot of young people make, and they’re left struggling week to week to hang onto money. Both types of cars cost a lot of money to run, but the sports car is extra draining. Here are sample comparisons:
Weekly Costs Sports Car Run Around Car
Petrol $60 $20
Insurance $23 $8
Registration $11 $9
Maintenance/Servicing $14 $9
Total Weekly Costs $108 $46
$62 weekly savings with a run around car
All cars need maintenance, but because sports cars are imported, their parts cost a lot more to bring into the country and get fitted. Fuel consumption is so much higher, as they use the premium fuel, and because they are fancy and fast, they are far more risky. The insurance premium rises, as well as the excess, if you are in an accident. Due to the fuel consumption and the impact on the environment, the registration also costs more.
The savings of having a run around car vs. a sports car annually would be $62 x 52 weeks = $3,224. That could go towards a holiday, house deposit, or more savings for “just in case.” Sports cars are thrilling, but it costs to maintain that thrill. When purchasing your first or second car, I would always recommend the run around car, as you’re usually only going to work and back, and you are far better off lessening the risk of any damage and excess payments. As you can see from the above costs, if you have bigger plans, like buying a house or a nice holiday, making sacrifices, such as the style of car you drive, may well be the smartest forward-moving sacrifice you can make.
Weekly Financial Review
When it comes to planning, following it daily is very important to be sure you keep on your path. At the end of the week, set aside ten to twenty minutes to go over your progress with your budgeting or savings plans to find how well you kept to your goal. With this time, reflect on where you could make improvements and whether your goals could be moved closer or further based on your information. Reviewing your work and progress is the key to financial success.
To grow your savings, you need to narrow down your spending to the necessities. Spend money on what matters, and you will have excess for the things that don’t matter so much. When you hit certain goals, reward yourself for your achievement, such as eating out or buying something you’ve been holding out for, as long as you don’t go overboard and lose what you have achieved! It’s you vs. you, so make decisions to benefit yourself and hold yourself accountable for the challenges you set in place. Write down your financial goals, and follow up to be sure you’re hitting them each week.
Getting the Best Deal
When it comes to buying necessities or even a treat, it’s key to shop around. Avoid impulse buying the first thing you see, and you’ll find your savings add up a lot faster. There’s always a top chance there’s a better price out there; you just need to look. A good example is in weekly grocery shopping. Imagine if you focused on getting the cheaper items instead of brand names and sale items instead of other products. Even if it made a $20 difference to your bill, that’s $1,040 saved each year just on your grocery shopping.
A lot of people moving out of home are looking to buy brand-new furniture and items with additional loan money on top of the house debt. By doing this, you’re going to be paying more for your brand-new furniture due to the increased interest on your debt. If you start small, you can always build up to the dreams you want to achieve—look at what you could accomplish by cutting down on your groceries. You will also do it in better time by getting what you can afford and not putting any additional cost or financial stress on yourself.
Phone Plan vs. Prepaid
It’s exciting getting that new phone. Unlimited this and that, the world opens up! But by the first few weeks, you may or may not realise, with all this unlimited and the phone included in the payments monthly, you are paying to have a quick scroll through Facebook and send a few texts. Phone data is the most helpful, probably essential, service in this modern age, but how much do you need to be paying? The phone you pay for is usually labelled $500 to $1,000, which you will pay back on a plan, but as you go, it depreciates in value. Leasing a phone is no value to you, as you
hand it back by the end of the plan. Pre-paid, on the other hand, you keep your phone, and you do exactly the same thing you would on a plan. Most credit recharges include plenty of data, but you can also purchase more data. My recommendation for prepaid is Boost Mobile.
Here is an easy breakdown of the data:
Monthly Costs Plan Pre-paid
Data 180GB per year 300GB per year
Calls/Texts Unlimited Unlimited
Phone $500 $500
Monthly Costs $100 $25
12 Months $1,200 $800
As you can see, it’s a $400 difference, which could even be lower. If you require less data, you can buy less of a recharge—cutting $20 from a recharge would equate to $920 savings in two years. Another factor could be you don’t need as expensive of a phone to run on recharge, so that drives the savings well over $1,000 comparing pre-paid to a plan. This is based on one of the most popular phone providers, so looking further into plans and companies, you may even find there is more opportunity to save
yourself money. It’s all about doing the math and stacking up the two. That’s how you see past all the marketing and get to what you need to cut the waste.
Monitoring Your Use
The best thing you can do when living at home is to take a look at your routines and the way you live your life. It’s like running a business and trying to make it more profitable. You need to spot the waste. Do you find that you’re leaving lights on in your house unnecessarily? Do you throw out a lot of food? (A study found on the Foodwise website showed most Australian households chuck out, at least 20% of the food they buy.) Do you have extra-long showers or multiple showers through the day? Do you use the heater most days? These habits add up. Reducing waste is simple; it’s being aware of what’s happening in your home and what’s going on around you. If you strive with a mission to save, you will suddenly start seeing the waste everywhere, and it’s all on you to cut back on one thing each day. Even if you’re saving $20 per week by not overpaying for food you don’t need, that’s over $1,000 annually in your pocket to treat yourself or invest.
Medicare
So, what is Medicare? Something we all have access to that can reduce our GP fees and visits and even pay for our surgery or treatment bill completely! Medicare is the Australian health support program paid for by all the Australian taxpayers. Out of our income and through our taxation, a portion of it goes towards supporting the program. The idea is to have medical support available for every Australian at minimal or zero cost. This is highly beneficial, as it provides a range of coverage. If you’re in a public hospital being treated and even staying, this is all covered by Medicare. Your GP’s fees are reduced, as well as other medical check-ups. Before seeing a doctor, it would be wise to call before going to see how much of your Medicare can cover your visit. When it comes to the larger bills, as in surgery or other procedures, they can be “bulk billed,” which is simply writing off the expense to the government so it will cost you nothing. It’s important to know, if you are sick or have concerns, you have this available to fall back on as financial support. Put your health first!
The only issue with the publicly funded Medicare is, if you do need a procedure, you may be on a long waiting list of three to twelve months or longer, depending on your severity. They prioritise who needs treatment first based on how life-threatening
the problem due to the high volume of users. There isn’t a way around this in the system, and that’s probably the only downside.
An alternative to consider is private insurance; if you are paying a large portion out of your income to Medicare and you can pay around the same amount to a private insurer, then that’s likely the best way for you to go. With private insurance, you can get priority and through procedures much faster, no matter the severity. It’s up to you to do the calculations of your income from the government’s website to find how much you’re paying, what’s covered, if you’re happy with that, or if you want the faster alternative.
Income Tax
As mentioned before, we pay tax to the government to pay for many services, such as road works, crisis support, maintenance of land, and the funding for states and state government. It’s collected from each taxpayer and distributed based on the government’s budget. The payroll officer at your place of work will have it automatically calculated to take away the tax you are required to pay each week, so it’s not something you need to worry about paying personally. At the end of the year, you receive a group summary that shows the amount you have earned for the year and the amount of tax you have paid. What you’ll find on most occasions is that you paid a little over the amount you need to, so you get a tax return. Below is an example on how it works:
Resident Tax Rates 2019–2020
Taxable Income
Tax
0 – $18,200
Nil
$18,201 – $37,000
19¢ for each $1 over $18,200
$37,001 – $90,000
$3,572 plus 32.5¢ for each $1 over $37,000
$90,001 – $180,000
$20,797 plus 37¢ for each $1 over $87,000
$180,001 and over
$54,096 plus 45¢ for each $1 over $180,000
(The above rates do not include the Medicare levy of 2%.)
I earn $25,000 for the financial year of 2019, and I have paid a total tax of $2,300, which is in the total amount ($25,000). I fall in the first bracket of income tax ($18,201–$37,000), so $18,200 of $25,000 is tax free. The $6,800 I have left from $25,000
is taxable—$6800 x $0.19 = $1292 tax to pay. Subtract that from the total tax paid ($2,300), and you get a $1,008 tax return.
You also need to pay a portion of the Medicare levy, which is calculated on the pay calculator, but you also get a government bonus of a low-income tax offset. Based on these calculations, the offset will pay for the Medicare levy, and you will get an even larger tax return after the end of the financial year, which is June 30th.
Once you get your group summary, which has to be given to you by your employer by July 14th, you can take it to a qualified accountant to do a tax return for you for a fee around $100. Otherwise, there is an easy setup to follow on the myGov website (my.gov.au). They supply everything you need on there to fill out your tax return. To have an even larger return, you can claim your uniform, some travel, your phone (if used for work purposes), laundry, self-education expenses, and many other deductions. They have a selection for you to fill in, and for more clarity, you can visit the government website to take advantage of it. If you go the myGov route, you will also save yourself the accounting fee, and you will have a much better understanding of your finances, which is what I recommend. Just do further research on the items you choose to claim to be sure they’re eligible.
Real Estate Rates
When it comes to a home loan, the rates are an essential key to how much the house will cost you in the end. Most of the time, when buying a home, you are provided with so many packaged deals, it’s overwhelming to know what to choose. A rate of .5% on a home loan might not seem much, but if you plan for thirty years of repayments, it can cost you a load of interest over this period. There’s plenty of competition, and if you don’t look around, you will not reap the benefits. One tip would be to use a comparison calculator, such as the one on Finder’s website (finder.com.au). This website compares the current rates, and you can compare the rest against each other.
The only other thing to consider are the fees, which you should ask for upfront before committing and finding the type of rate you want. Fixed-Rate financing means the interest rate does not change over the life of your loan. With a fixed rate, you can see your payment for each month and the total you will pay over the life of a loan. You might prefer fixed rates if you are looking for a loan payment that won’t change.
Variable-rate financing is where the interest rate on your loan can change based on the prime rate or another rate called an “index.” With a variable-rate loan, the interest rate on the loan changes as the index rate changes, meaning it could go up or down. Because your interest rate can go up, your monthly payment can also go up. The longer the term of the loan, the riskier a variable rate loan can be for a borrower because there is more time for rates to increase.
Here’s an example of the difference in interest rates on a thirty-year loan worth $300,000:
Bank 1 Bank 2
Fixed Interest Rate 5% 4.5%
Weekly Repayments $371 $351
Total Interest Paid $279,368 $246,848
With a .5% rate difference over thirty years, that’s a $33,000 variance. It may seem like a small percentage, but it can create a large gap. Including the total paid to interest, you have paid nearly double the value of the purchase price of your house. It’s important not to rush into a loan and have a good deposit to put down prior. You should be aiming to save at least 15–20% of a deposit for your dream home; it will take a lot off your interest repayments and make living a little easier. You may even be able to take the loan for a shorter period of time, removing interest and house repayments sooner from your life.
Another key to interest repayment reduction is to pay weekly instead of monthly. The sooner you pay, the less interest is charged, as interest is charged by the percentage of the remaining loan. If your finances are doing well, you can also put an additional amount of money towards your loan. Even if it’s an extra $50 per week, it will make a huge impact. Based on the above Bank 2 payments:
• $50 extra per week shaves six years off the thirty-year loan and saves approximately $58,400 in interest
• $100 extra per week shaves ten years off the thirty-year loan and saves approximately $92,700 in interest
The impacts are huge and can open up the opportunity to own your home a lot faster and use this money for holidays, renovations, or retirement funding. The money is better off in your pocket, so if you focus on living comfortably and keeping up with repayments, you can keep a lot of additional money in your pocket as opposed to setting it up and leaving it.
Another thing to keep in mind is to buy within your affordability. Don’t get yourself into something you can’t afford, as you will find you won’t be able to escape the debt too quickly. You can always buy small and upgrade as you go through life and successfully manage your household debt. If you get yourself into too much debt, you may find out that you won’t be able to get out because the larger it is, the more interest it will accumulate. As you move in, monitor your usage, save where you can, and focus on minimising your debts. For personal finance and loans on cars, the same thinking applies. Save a deposit and think about whether or not you need the souped-up turbo car with higher insurance, fuel costs, and finance repayments or if you just need an affordable car to get you from point A to point B without any finance.
Emergency!
Statistics show most people would struggle to even draw on $1,000 if they needed it in an emergency. Most people are living week to week, just scraping by, and if any dilemma or out-of-the-blue cost popped up, such as needing a new car battery, they would not be able to pay it. This is living in a dangerous, financially stressful world. To take control of this, you should set up an emergency fund account. This will be drawn upon only if you don’t have the money ready for car servicing, car registration, insurance, medical bills, job loss, etc. This is only for a crisis! A good figure to aim for would be between $1,000–$2,000 as a back-up-only reserve. Once you get your first $1,000, it’s smart to continue building on it. To calculate this, determine your annual costs, your weekly living expenses, and your living expenses for up to three months, then plan out a payment model to build up this reserve. You could start by putting $40 away per week, which, after a year, you would reach the $2,000 mark. Being mindful of this, you can relax when it comes to anything financial. You’ve backed up yourself, and you won’t push yourself into stressful mistakes, like quick finance schemes, which have you on high-interest repayments (if you were desperate).
Another quick way to boost these emergency funds is clearing out clothes or junk sitting around your house you have no use for anymore. You can clear out unnecessary items through online sales or garage sales and take that money straight into your reserve account. Finance is stress-free when you keep yourself debt-free. To minimise stress when you’re in debt is to take control and set yourself up so, if any failures or obstacles appear, you will have the necessary back-up to get you through. You will be able to act on a situation without being forced to make rushed moves.
Do this:
• Set up your bank account structure to put money into certain goal accounts.
• Calculate how much you need for that dream holiday, car, house, emergency fund, etc. and work out what you need to put away for each goal.
• If you have one, get online access to your superannuation account.
• Clear out the junk in your house and build up your emergency account.
• Review finances weekly and reduce your spending where you can.
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