New Year's Resolutions
Looking to make a change in the new year? According to some polls, about four in ten people make new year’s resolutions, although half these people probably won’t stick to their plans.
Andy Low, a Financial Planner with HSBC, discourages making financial resolutions for this very reason. “New year resolutions often lead to disappointment”, he says. Instead, Andy recommends a financial stocktake and using the time with family to have a financial conversation.
Don’t make a whimsical resolution but sit down and think properly about where you want to be financially. “If you don’t have any financial goals, then the new year’s a great opportunity to set some,” Andy says. “For any investment plan, it is better to start as early as possible.”
There are five things that every person should do at the start of the year.
- Review your credit report
Data and security breaches are becoming increasingly common in the online world, with Uber and Yahoo! just two companies that have recently been hacked. It’s not always easy to stay on top of your financial data and making sure you haven’t been a victim of fraud. One way of doing so is to check your credit report.
In Australia, three companies provide credit scores. The largest is Equifax (which recently acquired ‘Veda’). The other two are ‘Experian’ and ‘Dun and Bradstreet’. ASIC website contains information on where you can access your credit report for free, and ways to improve your credit score. By checking your credit rating and credit report regularly you will ensure that all credit enquiries and listings are correct and that a thief is not using your financial data.
- Prioritise your debts
Make a list of your debts and arrange them by the interest rates you’re paying. “Rather than making a vague promise to pay off your debts in 2018, you need to have a more specific and realistic commitment,” says Andy. “This means focusing on eliminating one single debt with the highest interest rate, and then systematically working your way down the list.”
Andy recommends thinking of each debt as a mini task so that you can celebrate each milestone, which will provide motivation and momentum. “Trying to attack all your debts together will feel more overwhelming and unachievable.”
- Boost your emergency fund
Around 80 percent of working-age Australians are stressed about their finances, according to a recent report by the Financial Planning Association of Australia. Our top regret is not saving enough, with over four in ten people saying this is the top thing they want to change. To help do this, consider an emergency fund.
“Australians need to create a savings cushion now, while interest rates are low, to prepare for more challenging times,” says Andy. He recommends adding one month’s pay to your emergency fund over the course of the year, and setting regular reminders. This will provide peace of mind in case of unexpected expenses and future needs. This will also help protect you from getting into more debt during a serious emergency.
- Understand the impact of super changes
Super is one of the most tax-effective ways to save money, although obviously only for retirement. The new year is a great time to log on to your super website and review your super statement. New rules came into effect in July 2017, including the lowering of the contribution caps. Eligible workers can now also make tax-deductible super contributions at any time instead of relying only on salary sacrifice. Andy recommends chatting to your financial advisor about how the changes impact you and how to make the most of your super. He adds: “You can also combine multiple super accounts to save fees, make extra contributions, and review your investment options.”
- Track and reduce regular expenses
Cutting unnecessary expenses is also a great way to improve financial wellbeing. “Through the year, many expenses can creep in. So, it’s important to take the time to list and review these ongoing costs,” says Andy. “And cut those expenses which you aren’t using or no longer need.”