Are you stuck in a debt trap or simply failing to make a dent in your savings account? Now may be the time to take a close look at your finances – it’s never too late to improve your money habits.
But where should you start? Here are five tips to revamp your finances.
1. Learn to budget
Budgets have an undeserved bad name but once you get the hang of them, they can make your life so much easier. A budget helps you escape the trap of living from one pay day to the next, and it’s a good way to find the right balance between spending and saving.
There are plenty of online tools and apps that show you how to draw up a budget and stick to it.
“Look at budgets as permission to spend money, rather than restricting your spending,” James Hand, financial adviser with Centric Wealth, advised.
2. Develop a savings habit
There are many benefits to developing a disciplined savings habit – financial freedom, the power to tackle unexpected financial emergencies head-on and the ability to pay for big-ticket items without having to rely on credit.
“Getting into a regular habit of saving is a good habit to have,” said Marc Bineham, director at Noall & Co and vice president of the Association of Financial Advisers.
“Start with an amount you won’t miss. That’s a trap we see people falling into often – they start too high and can’t maintain it.”
Sign up for a high-interest savings account and arrange weekly, fortnightly or monthly direct debit deposits. It’s a guaranteed pain-free method of establishing some financial security in your life.
3. Pay off credit card debt
With interest rates as high as 20 percent, credit card debt can end up costing you a lot more than your original purchase – and trap you in a cycle of ongoing debt. The smartest way to use credit cards is to pay off the entire balance each month and avoid a hefty interest charge.
If your credit card debt is unmanageable, consider moving the debt to a new credit card with an interest-free period and paying it off within the time limit.
4. Fall in love with compound interest
“Albert Einstein said compound interest is the eighth wonder of the world. It’s amazing how compound interest works and how few people realise what a difference it can make to savings or help reduce a mortgage,” Bineham said.
The longer you allow your savings to compound, the more interest you will earn – which is why it’s important to start saving at a young age. When it comes to mortgages, paying more than the minimum repayments can save you tens of thousands by attacking the compound interest.
“You can reduce a mortgage from 25 years to 12.5 years by paying just an extra 12 percent to 15 percent,” Bineham said.
5. Set goals
Having a goal, whether it’s a holiday, a new car or a deposit on a home, can help you focus on the big picture and provide the motivation you need to stick to your budget and improve your spending habits.
“Set yourself one-year, two-year and five-year goals,” Bineham suggested.
“You can have a short-term goal and a long-term goal at the same time. For example, a trip to Europe next year and a deposit for a house in five years. And write your goals somewhere where you can see them every day.”