Finance expert Anthony Bell gives us essential advice and tips on how to get finances in order for a more successful 2013!
Here’s my 6 tips for a successful 2013.
1. Repay debt
When it comes to debt you should always be looking to pay off the debt that carries with it the highest rate of interest. So if your credit card has taken a bit of hammering over the festive period your first priority should be to direct any spare cash to paying this down, rather than putting it towards your mortgage or keeping it in a bank account. You could also consider making a redraw from your mortgage to pay off the credit card bill or alternatively you could take advantage of the interest free offers available which let you transfer your credit card balance and pay no interest for a set period of time.
Moving on from the credit card, the mortgage then becomes the focus. One of the best methods of saving is directing your spare cash to repaying your mortgage debt. There is no benefit in parking surplus cash in the bank earning a lower interest rate that what you are being charged on your mortgage. A good idea is to combine the two ideas through the use of an offset account attached to your mortgage. Putting surplus cash in the offset account is like paying off your mortgage but you still have access to the account if you need funds for an emergency.
2. Take advantage of low interest rates
Interest rates are now at historical lows so take advantage of this opportunity by refinancing your debt to a lower rate. The trick here is to try and at least keep your repayment levels the same so that you’re paying more off your mortgage. Better still if you can slightly increase your payments, even by $50 a month, it will all add up over time and make a huge difference over the life of the loan.
You may also want to consider fixing some of your loan now why rates are low. Fixing your loan will lock in the low rates on offer and provide certainty of future payments. You should talk to a mortgage broker about refinance and fixed rate options.
3. Budgeting
If you are finding it impossible to save then chances are you don’t have a good handle on where your money is going. To get some clarity around this, a good starting point is to devise a budget of all your costs over say a monthly period. Once you know where your money is being spent setting budgeting/financial goals becomes a lot easier.
One way to look at savings is to treat it like an expense in your budget just like your rent, phone bill, utilities etc. By putting savings into your budget it should give you a clear idea what’s left from your income that’s yours to spend. Be realistic though otherwise chances are you won’t stick to it.
4. Look for investments with good yields
If you are in a position that you have some spare cash and you’re trying to work out where to invest it, my tip would be to look for investments that pay a good income yield. Be careful not go into an investment based simply on its promise of capital growth as growth tends to be far more speculative and is not guaranteed. Growth definitely can be achieved from certain investments but it tends to be more a by-product of investors hunting for yield and bidding up the price of the asset.
In the current economic climate with interest rates at their current lows, having your money sitting the bank is not going to reap you a great return, you should be looking for good quality high yield shares or property that will deliver a good rental yield.
5. Diversification
With the above said it’s still important to remember the old saying ‘don’t put all your eggs in one basket’. There is a lot of risk associated with having all your savings tied up in one asset class, like property or shares. You want to look to diversify that risk away by spreading you savings across various asset classes.
The big question is how much do you put in each asset class? This really depends on what stage of like you’re at and what your goals are.
If you’re young and can afford to take on a bit of risk you should have more exposure to growth assets like shares and property. However, if you’re nearing or in retirement, capital preservation should be your focus and therefore a greater exposure to income/defensive assets such as bonds and term deposits is more applicable.
This is where seeking professional advice from a licensed financial planner you can trust becomes so important so your personal circumstances and goals can be properly considered. It’s an often repeated mantra that writing down your goals is the first step in achieving them; this is particularly true when it comes to financial goals.
5. Protect your family financially
Financial protection is often an afterthought for most people but in reality it should be right alongside any wealth accumulation plan you have in place. If you haven’t thought about how your family would manage financially if you died or got sick then now is the time to start considering it.
One of the most crucial things to protect is your income as your ability to earn an income is your single biggest asset. Having protection in place becomes especially important if you have debt or a family that is dependent on your income continuing. I would encourage you to talk to a risk advisor about the different types of insurance and asset protection strategies that might appropriate for you.
By Anthony Bell
www.bellpartners.com
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