Financial advice on how to set achievable goals for 2019
Finance guru Laura Higgins loves it when people talk money, and she says there’s no better time to check your finances than the start of a new year.
“January is a really exciting time. It’s a fresh start,” she said.
But before you set your financial goals for 2019, there’s one thing she recommends doing first.
“Know where your money is going,” she told ABC Radio Melbourne’s Warwick Long.
“If we really track our spending, maybe we’re surprised by how much money we’re spending on coffee or on takeaway food or on activities for our kids.
“Once you have a real understanding of where your money is going, you can decide if you’re happy with that or if you want to make some changes.
“It’s really difficult to launch into doing a budget straight away without a realistic idea of where your money is going now.”
It’s important to track your spending before setting goals so you know where your money goes. (AAP: Alan Porritt)
Step two is to set some goals — but make sure they are achievable.
“Set ourselves up to succeed … don’t set ourselves up with a goal that we need to hide from,” Ms Higgins said.
“I think we can be a little bit ambitious at this time of year, a little bit hopeful.”
The ASIC MoneySmart senior executive leader recommends thinking about:
- What you want now (such as paying off debt)
- What you want later (such as building a savings buffer for unexpected expenses)
- What you want for much later (such as increasing your superannuation)
“If we give ourselves some little goals around those things, I think we can feel good about our finances,” she said.
For some people a worthwhile goal might simply be to get to know your own finances.
“Sometimes the goal might not be to build your savings but just understanding where your money is going,” Ms Higgins said.
“And if people really are in strife and really need additional help, there is the National Debt Helpline, which I would encourage people to call if they need it, on 1800 007 007.
“If you are in financial hardship, you’re not alone. There’s often someone that can help you.”
Managing debt effectively
ABC Radio listener Oscar called to share his story; he owes $6,000 to the tax office and $15,000 on a car loan.
He wanted to know whether he should get a lower interest personal loan to pay off those debts before selling his car.
While Ms Higgins didn’t want to provide specific financial advice without knowing all his circumstances, she did have some suggestions.
“You’re asking the right question,” she told Oscar.
“So just looking at the debt that you’re managing and really tallying it up and being honest about what you owe and what you can service is a really great thing to do.
“Sometimes people are even afraid to do that, so it’s a great first step.”
Ms Higgins said it was common for people, especially young people, to take on large amounts of debt for a car.
But just because it’s common, doesn’t mean it’s a good decision for you.
She said it was important to think about not only whether the loan was serviceable now, but whether it would be serviceable if your circumstances changed.
“I would do a bit of research, maybe check out MoneySmart online, see what you can learn there and go to your bank with questions.
“Your bank may be able to provide you some advice on whether or not the arrangements that you have are best suited to you.”
Ms Higgins also suggested approaching the ATO if the repayment plan was causing financial hardship.
“They can help you out with how you repay that amount so that’s something to explore.”
Ms Higgins recommends thinking about your risk appetite before deciding to invest. (AAP: Mick Tsikas)
What to do with savings
John and his wife had their first child a few months ago and managed to save a small amount of money.
He wanted to know whether he should invest it in shares or put it in a savings account.
Ms Higgins recommended people consider their appetite for risk and when they wanted the money to come back to them.
“You need to look at the bigger picture of what you’ve got on your plate and what expenses you have, not just today but what might be coming up in the future,” she said.
“Investing a little bit in something that’s low risk, that might be the right thing to do. You’ll need to educate yourself a bit more in that space.”
She also said paying off more of your mortgage, investing in superannuation or creating a savings buffer might be right for you.
“I think it’s probably even more important when you have a little one that you do have a little savings buffer that you can access if something unexpected comes up.
“You do need to ask yourself those questions, so what do you need for now, what do you need in the short term, and what do you need for the long term.
“Spreading a little bit, and the right amount, across those buckets is sometimes the right thing for people to do.”
The best way to pay for a new car
Susan is about to pay off her home loan, a “very exciting” prospect for her, but she also has a 12-year-old car she wants to upgrade.
Her question was about the best way to pay for that car — whether it was to use salary sacrifice, redraw from her home loan or save the full amount.
Car loans are a common form of debt, especially among young people. (ABC News: Kathleen Dyett)
Ms Higgins said the MoneySmart car app could help calculate the long-term cost of buying a car, including the actual cost of servicing a car loan.
“There are lots of options of how you might pay for things and depending on someone’s personal circumstances, a different option at a different time in your life will be right for you.
“When exploring if salary sacrificing is the right thing for you, you need to look at all the elements of the contract that’s involved in that — what’s the interest rate, what is the balloon payment like, and what kind of insurance arrangements might be attached to that?
“Often when you’re doing things like salary sacrificing, they attach insurances that you might not need, so you need to look at the details and the cost of that.”