If debt is holding you back from achieving your financial goals it’s time to take a fresh look at a proven strategy for getting ahead.
If you have a home loan, car loan and a credit card – as many Australians do, it’s a fair bet that a good chunk of your pay is being eaten up by interest charges. That’s money you could put to better use, such as growing your savings, paying other bills and expenses or enjoying a better lifestyle.
There are a variety of ways to trim the interest cost of debt however the most effective is making additional repayments to pay off the balance ahead of schedule. Even small extra payments can generate significant savings on interest charges over time.
The trouble is, many working Australians find it hard to find the money for extra repayments. The demands on our wallet are many, ranging from groceries and clothing needs to the kids’ school fees. Even so, there is still a sizeable chunk of cash that slips through our fingers each year, often with nothing to show for it at all.
Half of us don’t know where the money goes
ASIC’s Senior Executive Leader, Financial Literacy Robert Drake, says, “We suspect many households end up misdirecting thousands of dollars each year because they are not keeping track of where their money goes.” As a result, Drake says, “Many people fall into the habit of living from pay to pay.”
If that sounds like you, it could be time to embrace a proven strategy for money management, namely, following a household budget.
A simple way to regain control
Your budget is an important tool, showing how much money is coming in through your wage or salary, and also income from investments plus any other sources of cash like Centrelink payments. The flipside is that your budget will reveal how much you are spending, and by comparing your total income to total spending, a picture will emerge of whether you are living within your means – or overspending.
Most importantly, your budget will highlight areas where cutbacks can be made to free up extra cash – money that can be used to reduce debt or build up a pool of savings and investments or top-up your super.
Useful tools for the job
ASIC has come on board with a handy new phone app called ‘Track my Spend’ – you can find out more at moneysmart.gov.au. If you don’t own a smartphone, maintaining a spending diary with pen and paper is just as effective for keeping tabs on where your money goes.
Add up the savings
If your budget shows you can save just $10 a day, it’s a valuable start that could put an extra $3,650 in your pocket over the course of a year. If you used that money to make extra payments on your home loan it could slash tens of thousands of dollars from your long term interest costs. Or you could put the money to work with a regular savings plan and grow your income through interest earnings.
Additional tools can be found here: New year financial resolutions from ASIC’s MoneySmart – create a better financial future in 2016
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Disclaimer: Information in this article is based on current regulatory requirements and laws, which may be subject to change. While care has been taken in the preparation of this document, no liability is accepted by Count, its related entities, agents and employees for any loss arising from reliance on this document.
This document contains general advice. It does not take account of your individual objectives, financial situation or needs. You should consider talking to a financial adviser before making a financial decision.