Financial New Year Resolutions!
It’s almost July already, and while the calendar year is half over, the 2014/2015 financial year is only just about to start. So, now is a great time to review your situation and make some changes to make the most of the next 12 months of the financial calendar. Here are some tips that should help you to improve your financial situation. 1. Start a regular savings plan If you find that it is sometimes difficult to set aside funds for investing after you have paid all your bills (and spend a little on entertainment and luxuries), a regular savings plan is a great way to start your investing career! The plan involves setting up a regular direct debit (usually monthly) from your bank account to contribute to an investment. This can be a managed fund portfolio or you could transfer funds to a separate high interest cash account and purchase shares when the balance increases. A benefit of this option is that you will be purchasing the investments on a regular basis, so you will be less affected by the ups and downs of the stock markets. Some months you will buy at higher prices and some months you will buy at lower prices, but over the longer term things should even out. If you invest just $100 per month at 9% investment return with all dividends and income reinvested your portfolio will grow as follows:
After 10 years your portfolio will be worth $18,962, compared to investing a total of $12,000
After 20 years your portfolio will be worth $63,814, compared to investing a total of $24,000
After 30 years your portfolio will be worth $169,902, compared to investing a total of $36,000
After 40 years your portfolio will be worth $420,833, compared to investing a total of $48,000
If you increase the monthly contributions by 3% to take into account the inflation your results are even better:
After 10 years your portfolio will be worth $21,341, compared to investing a total of $12,000
After 20 years your portfolio will be worth $79,159, compared to investing a total of $32,325
After 30 years your portfolio will be worth $225,779, compared to investing a total of $57,233
After 40 years your portfolio will be worth $585,837, compared to investing a total of $90,707
So now is the time to consider what you are doing with $3 or so each day that you could be putting towards an extra retirement nest egg. 2. Put money towards salary sacrificing Most people start to think about salary sacrificing when they are 10 years or less from retiring. With the Government looking to reduce people’s ability to get the age pension, the sooner you can start to add to your superannuation the better. The benefit from salary sacrificing is that you don’t pay income tax on whatever you sacrifice, but you will pay a 15% tax within your super fund for the contribution. If your marginal tax rate is higher than 15% you will benefit from an overall tax saving. In addition you will increase your superannuation balance, which will hopefully grow and grow for many years to come. 3. Review your investments Take an objective look at any managed funds and shares that you have, along with your money in your superannuation account. You can then compare the performance of these assets against various market indexes and other managed funds. If you find that some of your assets have under-performed, it may be time to consider selling or switching investment options. If you have some assets that have performed very well, it may be worth selling a portion of your holdings to take profits on the investment. 4. Reduce your debts If you only make the minimum payments on your home loan, personal loan or credit card you are going to be paying a lot of interest and your payments will last for many years. Even a small increase in your payments each month can save hundreds or thousands of dollars and cut a significant time off your loan period. 5. Make a budget I tend to find that very few people make a budget, but those that do are, on average, in a better financial position than people that don’t do a budget. A budget doesn’t have to make you feel like an accountant, you can simply set up three bank accounts:
One is for fixed expenses like loan payments, utility bills, groceries etc.
One is for saving. Set yourself a saving target for each pay packet and only use these funds to invest.
One is for discretionary spending and entertainment. You will use this account for eating out, movies, holidays and any other non-essential spending.
By splitting your income this way and having the discipline to not ‘dip into’ your savings account you will see your wealth slowly build and you will improve your financial situation. So as we enter this new financial year, make the resolution that it will be the time that you get your finances in order and take action, and to achieve your goals. If you need a little hand however, our team of Financial Adviser are always here to help with a FREE no obligation consultation.