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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
The Australian Securities and Investments Commission (ASIC) say the average Australian household will spend $69,166 on general living costs. Worryingly, only 54% of us know exactly what the money is being spent on.
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 offer 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.
To discover how a budget could work for you visit ASIC’s moneysmart website at moneysmart.gov.au. Alternatively speak to your Verve Group financial adviser on
(08) 8120 4877.
Source: Colonial First State
Disclaimer: Colonial First State Investments Limited ABN 98 002 348 352, AFS Licence 232468 (Colonial First State) is the issuer of investments in FirstChoice Personal Super and FirstChoice Pension from the Colonial First State FirstChoice Superannuation Trust ABN 26 458 298 557. Colonial First State also issues interests in products made available under FirstChoice Investments, other than FirstRate Saver and FirstRate Term Deposits which are deposit products of the Commonwealth Bank of Australia ABN 48 123 123 124, AFS Licence 234945, administered by Colonial First State. Australian Financial Services Licence 232468. Product Disclosure Statements (PDSs) and other offer documents describing the products are available from Colonial First State. The relevant PDS or offer document should be considered before making a decision about any product. Applications can only be made on the application form contained in the current PDS or offer document. This publication is not advice. It provides general information only and does not take into account your individual objectives, financial situation or needs. You should assess whether the information is appropriate for you and consider talking with your financial adviser before making an investment decision. Information used in this publication which is taken from sources other than Colonial First State, is believed to be accurate. However, subject to any contrary provision in any applicable law, no member of Commonwealth Bank of Australia Group, their employees or directors, provides any warranty of accuracy or reliability in relation to such information or accepts any liability to any person who relies on it.
[1] ASIC media release 12-194MR How do you keep track of your spending?, Monday 13 August 2012