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As cost-of-living pressures mount, more than half of Australians are feeling the pressure on their wallets.
There’s no denying many faced financial challenges in 2023, from 13 interest rate rises in 15 months to high inflation and a soaring rental crisis.
With more of the same being predicted for at least the first half of 2024, RMIT finance associate professor Angel Zhong has shared her six top tips to achieve money goals.
While some economists have expressed optimism the country has reached peak inflation, Dr Zhong cautions that any drop in cost of living or interest rates will take “some time” to be felt by the average Australian.
“The key to a successful financial reset is to set realistic goals and stick to them,” she says.
“Whether it’s building an emergency fund, paying off debt or starting an investment portfolio, the key is to establish goals that align with your unique financial situation.
“By making small changes to your spending habits and focusing on your financial goals, you can make 2024 your year for saving and building a positive relationship with money.”
Set realistic financial goals
The new year is a perfect milestone for Australians to take stock of their finances and set up a realistic budget and goals, Dr Zhong believes.
She says the first step should be a holistic review of a person’s individual financial situation, looking at their income, liabilities and assets.
From there a person should identify areas where they can cut back on expenses and make new financial goals for the year.
Dr Zhong says a good financial goal is clearly defined, measurable and with a set timeline, giving the example of aiming to save $500 across the next month.
“A goal that fits someone else may not fit you,” she says.
“It must be aligned to your finances and be achievable. If you can’t clearly define it, it’s harder to meet.”
Dr Zhong recommends setting multiple financial goals, some for the short, mid and long term.
Track your spending
It may not be glamorous, but Dr Zhong says the key to achieving goals is by tracking everything money is spent on.
“It helps to have an understanding of your personal financial landscape and you can discover your patterns of spending,” she said.
“Ask yourself; ‘what is hindering my financial goals?’”
Tracking spending helps identify where a person’s money is going and can be used to judge whether the expense is in line with personal values.
This will identify areas a person can cut back on.
Dr Zhong recommends using a budgeting app, spreadsheet or online tools, such as those available on the Australian Government’s moneysmart website.
Tackle bad debts
If you’re anything like the 38 per cent of Australians, or about 7.7 million people, who racked up large credit card debt over the Christmas period, paying off debts will be a priority in 2024.
Dr Zhong recommends straightening out bad debts as soon as possible to avoid the often high interest and shorter repayment loans “spiraling like a snowball”.
She makes the important distinction between good debts, such as student loans and mortgages which serve to build a person’s financial future, and bad debts like credit cards, buy now pay later and payday loans.
The first step to sorting out debts is to list out each debt organised by the interest rate being paid and tackle them top to bottom, according to Dr Zhong.
“If you have any outstanding debt, make a structured plan for repayment,” she said.
“Consider consolidating your debt or negotiating with your creditors to reduce your interest rates.”
Start strategic budgeting
An afternoon spent budgeting may not be everyone’s favourite way to pass the time, but Dr Zhong believes it’s a crucial tool to taking control of one’s finances.
She recommends regularly reviewing budgets, such as the start of a new year, to make adjustments for how an individual’s personal circumstances may change.
While there are many strategies for budgeting, Dr Zhong recommends the 50/30/20 method — where 50 per cent of post-tax income is spent on essentials like food and housing, 30 per cent on wants like a dinner out or holiday and 20 per cent goes to savings or debt payments.
Also included in the savings category, she recommends people work to build up an emergency fund – typically recommended as three to six months of expenses – for life’s curveballs.
“I always aim to put five per cent into my emergency fund but it depends on individual preferences,” she said.
“I am super risk averse.”
Check the health of your superannuation
Australians currently hold more than $3.5 trillion in their superannuation accounts,
“Your superannuation is a cornerstone of long-term financial stability,” Dr Zhong says.
“It is your money, the system was set up to support you for a better financial situation in retirement … and yet, a lot of Aussies don’t even know their balance.”
She recommends regularly reviewing your superannuation’s performance using the Australian Taxation Office’s YourSuper website.
Factors to compare your super against others include, their performance, fees, investment options and whether their investments align with your values.
“It’s really useful,” Dr Zhong says.
Seek professional help
If you’re struggling to manage your finances, consider getting professional help.
Dr Zhong recommends anyone looking to improve their financial position in 2024 begin by reading the financial planning advice on the moneysmart website.
Beyond that she says a certified financial planner can be very helpful to create a plan to achieve financial goals.
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