Financial uncertainty is at an all-time high. The current economic crisis is forcing many people to re-evaluate their spending and budget more tightly than ever. For many of us, now is the time to change our money habits and avoid those not-so-sensible purchasing decisions.
We called on an alumni financial expert to reveal how to survive the current economic climate. Joe Eapen, a manager at an Australian superfund, shares his top five tips for making the most of your money.
1) Set a realistic budget
The purpose of a budget isn’t to restrict your spending, but to make it more visible. You need to know what money is coming in and where it’s going out. Having short-term, achievable goals in your budget makes it much more rewarding, with the satisfaction of those smaller wins keeping you on track for the bigger wins to come.
‘Use your bank account to help keep track of things. Note anything you spend cash on and if you’re using a credit card you can easily download a transaction history for the past month. Spend an hour or so sitting down tallying everything up. You’ll be surprised at what you spend money on and how much in a month. From there, you’ll be able to identify areas you can reduce some of your outgoings.’
2) Review your service providers
Have you ever signed up to automatic payments with a service provider, only to discover months or years later that you’re no longer getting use out of that service? Who hasn’t? That’s why it’s important to regularly review your outgoing payments to your service providers.
Service providers include your health insurance, home and contents insurance, car insurance, mortgage providers, credit card provider, and many more. People often sign up to a service, then don’t review it for years.
There are several product comparison sites to help you compare your service providers which can help take the leg work out of comparing products, and a mortgage broker can assist with sifting through the range of lending offers available to you.
‘A lot of providers have introductory offers which initially entice us, then over time the cost of the service creeps up. You will be surprised how much you can save if once a year you take the time to review what all your services are.’
3) Increase your value
Our purchases can be on things that will go up in value over time or things that reduce in value over time.
‘For most people, money is spent on things that reduce in value over time, which means over a stretch of years, they are losing the money they earn, rather than growing it.’
Groceries, clothes, electronic gadgets, cars, and shoes are all things that reduce in value over the course of a few years. But what about shares, property, super and fixed interest investments?
‘These are things with a much greater chance of increasing in value over time, preserving and growing your hard-earned money.’
4) Invest in your future
Have you considered adding additional funds to your superannuation?
Most people give very little thought to their superannuation until their retirement is on the horizon.
‘Whilst your super is locked away, it has the power of time to help it grow and ensure you have more financial freedom when you retire and call on it.’
Contributions to your superannuation will, over the course of the years, add up and grow your nest egg considerably.
‘If you could find a dollar a day to contribute to your super, you’d be able to add $30 each month. Do that over 20 years with a 5% pa return and you’ll have an additional $12,000. If you can spare two dollars a day over that 20 years, you’re now looking at an additional $24,000. A little goes a long way with the benefit of time on your side.’
5) Have a long-term goal
When things get hard, you need discipline to ensure you stay on track. A bigger goal that you know you’re working towards can help you achieve this.
Make sure you understand what your long-term financial goal is. Is it to try and retire by the time you’re fifty? Is to be financially secure enough to reduce your work hours? Is it to be able to help support people in your family? Write down your goals and be clear about why you want – or need –to achieve them.
‘When you can’t be bothered doing your budget, don’t have time to review your service providers and don’t care if you spend all your money on value reducing items, you’ll still have your goals to help you keep on track.’
This advice is for general information only. It should not be taken as constituting professional advice from the website owner and does not take into account your individual objectives, financial situation or needs. Before acting on any information, consider seeking independent financial advice that relates to your unique circumstances.
About our expert:
Joseph Eapen (Bachelor of Finance, 2002) has been working in the financial services industry for more than 20 years, assisting people with their superannuation and financial planning. He currently works with an Australian superfund as the Manager of Scaled Advice, leading a team that assists members and non-members with the right financial advice solutions for their needs.