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Collins Home Loans Blog

How to make positive changes to your finances that actually stick

Sep 20, 2017 10:21:19 AM

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It’s easy to feel overwhelmed about your finances but so often these feelings are related to your relationship with money and how you manage it, rather than how much money you actually have. We have put together 7 simple tips to help take the stress out of your personal finances and to assist put some strategies in place.

1. Start by understanding your net worth

Your net worth is the difference between what you own and what you owe. By keeping a close eye on your net worth you’ll be able to assess whether your personal finance status is improving or decreasing. In order to calculate your net worth, make a list of all your assets (what you own), and then make a list of all your liabilities (what you owe). Now subtract your liabilities from your assets. The figure that remains is your net worth.

2. Set your financial goals

Once you have an understanding of your net worth, it’s important to set your financial goals. Your plan should be to improve your net worth on an annual basis. The first thing to remember about financial goal setting is ‘be realistic’. There’s ’s no point in planning to double your net worth if that’s not possible. Instead, be very clear and precise about what you want to achieve. Are you looking to buy a new home? Are you setting up an investment portfolio? Once you have defined your goals, group them into short- and long-term goals, so you have a clear idea of when they need to become a reality.

3. Establish a budget and track it

A budget helps you keep track of your personal finances. Planning a monthly budget can keep you from spending money on unnecessary expenses and ensure you stay within your saving plans.

There are a number of online tools you can use to create your budget, like Pocketbook, a powerful Australian app that helps you keep track of your spending and reach your financial goals. General expense categories in an average family’s budget should include:

  • Debt payments – mortgage,
  • Insurance
  • Food – groceries
  • Entertainment and recreation – sports, hobbies, movies, dining out
  • Medical – insurance, dentists, prescriptions
  • Utilities – phone, electricity, water, Internet
  • Personal – clothing, hair
  • Giving – birthdays, holidays, charity

4. Invest at least 10% of your net income

Saving lies at the heart of achieving healthy personal finances. Try to put at least 10% of your salary into a separate savings account and then every six months invest this accumulated amount in a long-term investment. The benefits of compound interest on savings are well known – the earlier you start saving, the more your savings will grow. Starting to save early in your career also gets you into the habit of saving. The sooner you start, the easier it will be to reach your long-term financial goals.

5. Avoid unnecessary debt

Don’t take out loans to purchase unnecessary items like clothing, a holiday away or a new phone. All these things lose their value over time and bring you no long-term financial returns. Rather, invest in things that will increase in value over time like your home or your children’s education.

6. Spend mindfully

It’s important to identify your needs versus your wants. Your needs are all the things you need to survive, like food, water, healthcare, shelter, transportation and basic clothing. Wants are those things that you would love to have but can go without.

For many people, the line between needs and wants can become blurred – particularly when you are purchasing things like clothes or cars. A shirt from a local retailer will keep you as warm as a designer shirt. But the designer shirt definitely falls into the wants category. Similarly, a basic car will drive you from A to B. You don’t need to purchase a top-of-the-range SUV to travel to work and school.

7. Restructure your existing debt

It is important to regularly review and restructure your existing debt like your mortgage and your credit cards. Many people don’t realise that they could be enjoying a better deal on their home loans – especially if they have had the same mortgage for more than two years. A home loans comparison calculator can help you compare offers based on loan terms, interest rates and additional fees.

A Collins Mortgage Broker can also help you assess your current home loan and assist you with finding a better deal with a free home loan assessment. Devoting 15 minutes of your time to reviewing your home loan on an annual basis could save you thousands of dollars, or at the very least, offer you peace of mind that your existing home loan is still meeting your financial goals. Arrange a Home Loan Review today.