Finance may not be sexy, but this classic season for goal-making and self-reflection is actually quite suited to financial resolutions. Access to annual financial statements can show you how you managed your money in 2019, and give you an idea of what you can achieve in 2020.
If you’re not sure where to start, we’ve picked 7 of the best financial resolutions for you:
1. Make a realistic 2020 budget
As the saying goes, a goal without a plan is just a wish. If you’re serious about improving your financial situation in 2020, you need to have a realistic plan that you can stick to. In finance, the best plan is to start by preparing an honest budget.
Write down a list of your current debts and bills, and do a thorough expense audit of your annual bank statement to find out where your money is really going.
Did you spend an unexpected $500 this year on UberEats? Maybe you subscribed to free trials of Prime Video, Disney+, Netflix, Stan and FoxtelGo, and didn’t notice that they all switched over to paying accounts?
Whatever you have done with your money this year, be honest with yourself, because if you cheat, you’re only cheating yourself.
2. Cut down on stuff you don’t need
When you’re making your 2020 budget, think about what you can afford to live without.
Cutting down on your expenses is almost a similar process to decluttering your home. As Japanese Author and tidying consultant Marie Kondo says, “Small changes transform our lives.”
This same logic applies when reviewing your spending habits. Reducing unnecessary expenses can significantly impact the amount you can save, and help you pay off debts.
Starting small is the key to success. Getting rid of just one digital subscription for example, could save you over $100/year, and show you the benefit of sacrificing one small luxury to grow your savings.
3. Check your savings rate is above the inflation rate
A quick tip that you can implement quickly in 2020 is checking that your current savings account is offering you an interest rate above the inflation rate.
The inflation rate is currently sitting at 1.7 per cent. So, if your savings account is offering you an interest rate less than that, you are basically “parking” your money, rather than earning real interest on it.
For example, if you have $100 in your savings account now, and your savings interest rate is 1.5 per cent per annum, you will technically have $101.50 in your account at the end of the year.
However, if the inflation rate is 1.7 per cent, at the end of that year you will need $101.70 to buy goods or services originally worth $100. So, in terms of “real purchasing power” at the end of the year, you have lost 20 cents. Technically, the bank is not taking away any money from you, you are just not earning as much as you could have previously.
0.02 per cent, or 20 cents for every $100 may not sound like a lot, but if you have $100,000 in your savings account, this 20 cents turns into $2,000.
4. Get a lower interest rate on your home loan
After three RBA cash rate cuts in 2019, interest rates for both owner occupier and investment home loans have reached record lows.
This prompted many Australians to start looking at the rates offered by their current lenders. Some customers found they could save thousands by switching from a big four to a smaller lender with a lower rate, yet many are still reluctant to switch. Whether this is a case of consumer inertia, or customer loyalty, is hard to tell.
However, just because you don’t want to switch doesn’t mean you can’t get a lower rate. If you’re a loyal customer, you can always negotiate a lower rate on your home loan by trying one of these four negotiation tactics:
- Shop around and find the lowest rates on offer, to see if you can save
- Ask for the same rate as a new customer, if you’re a reliable debtor
- Ask your bank for a discharge form, to show you’re considering switching
- Speak to a mortgage broker, to get professional financial advice
5. Consolidate your debts
Consolidating your debt can make managing your repayments a lot less confusing. It can also help you reduce the total interest you pay on your debts, to save you money overall.
Two popular methods of consolidating debt are personal loans and balance transfer credit cards. Depending upon your financial situation, either could help you reduce your debt in 2020.
A balance transfer credit card allows you to transfer existing debt to a new credit card, and they often come with interest-free periods of up to twelve or even eighteen months. These cards can revert to a higher rate when the interest-free period is over, so if you want to consolidate your debt, be sure that you can repay it within that time frame.
A debt consolidation personal loan, on the other hand, does not have an interest-free period. These types of loans will often have a lower interest rate than what a balance transfer card will revert to after the interest-free period is up, yet provide a level of certainty if you need a few years to pay off your debts.
6. Resolve to improve your credit score
Your credit rating takes into account your entire credit history, positive and negative, and is used by lenders to determine whether you are a reliable debtor.
Here’s how you can improve it in 2020:
- Check your credit score: Showing you are committed to your financial situation, and regularly checking your credit score can, in fact, improve it.
- Pay off your debts: Increasing your credit card repayments or reducing your credit limit can do wonders for your credit score.
- Pay your bills on time: Making regular bill payments on time can make a positive impact upon your credit score, as you’re conscientiously working toward repaying your debts.
- Don’t apply for multiple loans: Applying for multiple loans at once can harm your credit rating, but multiple comparisons will not, so it’s important to compare loans first.
- Determine eligibility before you apply: Being rejected from a loan can also leave a mark, so before you apply, try to determine whether you will be approved.
- Check your credit data is correct: Credit providers can provide incorrect information, such as listing the same debt twice, so it’s important to check and contact them if it’s incorrect.
7. Make sure you always start small
A general rule for setting resolutions is to ‘think big, act small.’ If you have major goal you want to achieve, cut it down into smaller, more realistic goals.
Say you want to buy a house, for example. You might first consider aiming to save $10,000, or to pay off your existing credit card debt.
This final resolution is the most important resolution of all, because if you aim too high, too quickly, you may feel overwhelmed and end up giving up altogether.