Spring is here! Tradition dictates this is a great time to give your house an air out and a clear out.
Spring is here! Tradition dictates this is a great time to give your house an air out and a clear out. How about taking the time to do the same for your finances?
Setting aside some time to give yourself a monetary makeover once or twice a year, may help you keep more cash in your pocket.
What do we mean by spring clean?
It means taking a really close look at where your money’s coming from, and where it’s going. Get out your bank and credit card statements, whether they’re hard copies or online, and go through them line by line. Ask yourself these questions:
Do you spend more than your pay each pay cycle?
Do you spend most of your pay within a few days of your pay?
Does your pay go mostly into paying off debt or expenses or savings?
These are all signs you're in need of a financial tidy up. When you take a close look at where your money’s actually going, it can be a real eye opener. Sometimes you may discover you've been paying a small amount like, for example, $2.99 a month for the last 9 months for an app or subscription you rarely use.
Or maybe you always mean to go to the gym, but in reality you’ve been four times all year. Let’s say your gym membership is $500 a year - that means it has cost you $125 for each gym visit. Something needs to change - either start going, or cancel that membership!
Here’s a simple checklist to complete your financial spring clean:
- Write a list of all your income and all your regular expenses. Do this in the first instance from memory without checking your statements.
- Go through your statements line by line over the past several. Do you recognise each transaction? Does what you're spending match what your wrote down before you started? Any items you missed are a good place to start thinking about making savings. Highlight the direct debits and automatic payments you feel you don’t need to be paying, or that you simply don’t know what they’re for. Keep a note of how much you’re spending on things like coffees and eating out. It doesn’t mean you have to give anything up, but it’s useful to know how much you’re spending on what if you need to find some extra cash from somewhere in an emergency.
- Are you paying more than the minimum payment on your credit card (or cards) each month? If not, your debt could become hard to manage. For a good reality check, take a look at your credit card bill. It should include a breakdown of the true costs of your credit card debt over time. If your card debt is becoming a struggle you could consider transferring your balance to a credit card on which you pay 0% interest on the amount transferred, usually for a period of 12 months. Or you could think about consolidating your credit card (or other) debt into a personal loan at a lower interest rate. If you’re combining more than one debt into a loan it can also mean going down to one payment per month or fortnight to manage.
- Review your list of direct debits and automatic payments. Cancel the unnecessary ones and circle any payments that seem too large or that you may want to review again in a month or two.
- Use a comparison site (or even two) to see if you can get a better deal on amenities such as electricity, gas, phone, or broadband and even types of insurance. Changing providers on some services can trigger a credit check which may impact your credit score, but you could also try talking to your existing provider about improving your current deal based on what their competitors are offering.
- Review your mortgage. Often your home is the biggest fixed cost in your monthly budget and it can be easy to set it and forget it. But it’s worth periodically checking in on your mortgage particularly if there have been recent changes to interest rates. If you do change the terms of your mortgage just be clear about any fees you may have to pay.
- Open a savings account if you don’t have one already. The thing about savings is small amounts build up to useful amounts over time. Say you are absolutely strapped for cash but you decide to set up a direct debit to send $5 a week to a savings account. Over a year, that’s more than $260 you’ve put aside for the next unexpected bill. Shop around to find the right account for your needs. Some will give you bonuses for not making any withdrawals, some pay more interest and others require you to give a notice period before making a withdrawal. Find one that’s going to best suit your purpose. If you can afford it you could try several different savings accounts focused on different financial goals, such as a general emergency fund or long-term savings for travel or a house deposit. For some added motivation, MoneySmart has a savings calculator, which is a great way to see how much you might be able to save over a given period at different interest rates.
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