BB Finance Week 1

Your New Year’s Resolution: Do A Financial Health Check

Whatever your plans for 2022, getting your finances on track can make a big difference. Tilly Money shares their tips.

By Tilly Money

With 2021 drawing to a close, it’s that time of the year when we often like to come up with goals to better ourselves in some way. Nearly 70% of people make a New Year’s resolution to save more money or better their financial position. If you’re one of these people, you’ll find below is a list of things you can check off to get a head start on your New Year’s promises to yourself. And if financial wellbeing isn’t at the top of your to-do list, the tasks below are a simple way to check in on your financial health. You may be surprised by what you find!

First thing’s first, write down your goals:

Setting goals is a pretty easy task. You do have to sit somewhere quiet and think about what you want to achieve. Find some time to do that and have a good think about what you’d like to accomplish. It might be some of these:

  1. Rid myself of ‘bad’ debt within 12 months.
  2. Save and pay for my next overseas holiday (before I go!) so it won’t all be on my plastic card to be paid when I return.
  3. Save for a deposit for my first apartment/house/studio.

The first step is to really think about what financial goals you want to work at. The second step is to write them down. And the third (and most important) step is to put a plan in place to achieve your goals. This might mean having a goal to save $2,000 or more in the next 12 months. How much do you need to save each week to achieve this? It could be as little as $40 a week. At first you might think that sounds a lot but all you have to do is write a list of things that you can relatively easily do without, for example, that extra cup of coffee! What else might you need to ‘sacrifice’? And it’s not all about giving things up to reduce the money you spend. There might be ways you can make more money, for example, do you have to do some extra work to help you save?

The next step is to do a budget:

A budget helps you understand where your money is going and how much of your income you need to put aside to fulfill your wants and needs. By writing down every expense, you may find areas where you could spend less money and, therefore, save more.

There are no excuses for not writing out a budget. You can write it on a scrap of paper, make up an excel spreadsheet, use apps such as Pocketbook, Moneybrilliant and Moneytree or use the template below:

Items$ Spent per MonthItems$ Spent per Month
Mortgage/ RentHealth insurance
Strata& Council FeesHairdresser/ beauty appointments (laser, eyebrows, nails etc.)
Other loan repaymentsCosmetic/ skincare products
Water/ gas/ electricityStreaming services
Home & Contents insuranceEntertainment (music, live sport, theatre etc.)
InternetGym/ sport memberships
Phone billClothing, shoes & accessories
GroceriesGifts (birthday, Christmas)
Eating out/ takeawayDonations
AlcoholTakeaway coffee
Public transportRainy day savings
Ride sharing (Uber etc.)Pets
Vehicle insuranceMedical appointments
Vehicle registrationPharmacy
Vehicle servicing/ repairsOther:

After filling out your budget, try completing the following calculation:

Your monthly income: _____ (b)

Your monthly expense total: _____ (a)

Now b – a = c (your savings!)

_____ - _____ = _____

   (b)        (a)          (c)

Try this one: GST your life!

If your budget calculations have shown a less than healthy amount of savings, or you’d like to save even more, here’s a little trick you can try: it’s called GST your life.

Peter Switzer has written many books about money and he’s known for his easy style and the way he helps people get their money life sorted (see Peter says that the way you should save is to GST your life. This means you take 10% off what you currently spend and put it into whatever account you save in.

That’s right, you need to tax yourself 10%. If you spend $50,000 a year in rent, food, clothing etc. and you cut your spending by 10%, then you have $5,000 a year in savings. Have a look at the budget you filled in above and see where you could save money. Aim to cut this amount by 10%.

Here are 8 simple ways you could save money:

  1. Use comparison sites to shop around for the best insurance deal, home loans, credit cards, phone plans, energy provider etc.
  2. Shop in cheaper suburbs.
  3. Use the Fuel Check app to find the cheapest petrol.
  4. Use the Honey plug-in for automatically applied discounts when shopping online.
  5. Use Shopback when you can.
  6. Try Op shops and your local “Buy swap and sell” pages on Facebook.
  7. Cook meals at home to reduce the amount of takeaway or eating out.
  8. Take leftovers to work for lunch.

If you can think of more ways to shave off 10% of your spending, make sure to write them down and refer back to them regularly. You can find more tips on Tilly Money.

Understanding debt:

There are two kinds of debt; good debt and bad debt.

So what’s good debt?
Good debt is a loan that has the potential to increase your net worth. Your net worth is the value of all your assets minus any outstanding debt. Some example of good debt are:

  • A home loan
  • Student loan (HECS/HELP)
  • Borrowing to invest
  • Borrowing to grow your business

And what’s bad debt?
Bad debt is borrowing money to purchase depreciating assets, like a new car. The second you drive it out of the dealership, it starts losing value. Some examples of bad debt are:

  • Borrowing for a holiday
  • Borrowing money for an asset that depreciates in value (a car)
  • Credit cards/ Afterpay/ ZipPay etc.

Think about eliminating your ‘bad’ debt first. If your debt is getting hard to stay on top of, one way of managing it is to consolidate your debt. This involves taking out a personal loan to pay off each debt and any outstanding interest.
With a personal loan, you’ll have just one repayment to make every week, fortnight or month over a set term – you can usually choose your own frequency of repayments. And if the interest rate on the personal loan is lower than your credit card rates (and they often can be), this can help you get ahead in reducing your overall debt.

Make a strong resolution to put your house in order. Only buy things you can afford to pay for without going into ‘bad’ debt.  You can read more about good and bad debt here.

Now you’ve completed your financial health check, keep checking in throughout the year and try not to let your financial wellbeing slip.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.