Budgeting for 2020? This is your ultimate guide to getting on top of everything
It’s the start of a new year — and there’s never been a better time to get your money sorted.
This is the year to get on top of your budget (or start one), clear that debt, sort out your super and maybe even put a deposit down on a home.
I’m sure that’s all starting to sound just a tad overwhelming, right? But hang in there — the ABC’s personal finance project has your back.
We’ve taken the main points from our top articles this year and put them into one handy guide to help you get ahead in 2020.
Step one: Get on top of your budget
It can be confronting, but taking a peek at your current financial situation is the first step to getting your money organised.
The experts suggest it can be really useful to spend a couple of weeks doing a money diary where you list everything you spend — from big bills to those *occasional* coffees.
This gives you a useful overview of where your money is going and where you can cut down on any expenses.
It’s also important to set some goals, Griffith University financial planning lecturer Di Johnson says.
The corporate watchdog ASIC has a great guide available on its MoneySmart website, which includes a budget template.
And don’t forget to check back on how you’re going after a few months.
Step two: It’s time to dump your debt
Congratulations, you’ve completed the first step on your road to money security.
Perhaps you’ve spent up big at Christmas on your credit card or cards? Or maybe you bought a new car a few years ago and you’re still paying fortnightly instalments?
Whatever the reason, this is the time to write down all of your debts — who you owe, what you owe, what interest rate you’re being charged, and when it’s due.
If you’re already starting to feel a bit overwhelmed, that’s when financial counsellors can help. They’re independent, can act as an advocate for you (and best of all, they’re free).
You can find a local one by going to the National Debt Helpline.
Or if you’re feeling confident about doing it yourself, your first step is to create a plan to manage the debt.
A good starting point is contacting all the organisations you owe money to and asking for hardship provisions, financial counsellor Debbie Jacobs says.
It often means making a repayment arrangement, but sometimes you can negotiate lower interest rates or lower repayments.
She suggests starting with the most urgent and largest debts, such as mortgages or utility bills. Or those with the largest interest rate (often that’s credit cards).
Ms Jacobs also suggests trying to shut down credit cards and paying just the principal debt back without accruing more interest.
Sometimes rolling all of your existing debts into one big loan can help you better manage your repayments — it’s called consolidating your debt).
But you have to be careful. Sometimes interest rates or fees are higher on the one big loan than if you’d kept them all separate.
Step three: I’m ready to be a property mogul, what do I do?
If you’ve made it to the stage where you’re thinking of buying a house, one of the most difficult things to get your head around can be knowing where to start.
Obviously, having the biggest deposit you can pull together really helps to get the ball rolling. Then you can start tackling that mortgage application.
The big four banks use a number of measures to decide if they want to lend to you.
Don’t forget you’ll also need to check them (and other lenders) out to see who is offering the best interest rate.
Mortgage broker Bruce Carr says borrowers are assessed according to three or four cs (which can vary from lender to lender).
There’s cash flow (how much cash you have to service the loan), collateral (how easy will it be for the bank to sell your property if you default on your loan), character (are you reliable?) and credit history (have you struggled to pay your bills in the past?).
Part of that snapshot includes what your expenses are. So be warned, the banks will be looking at how much you spend on takeaway, Netflix and gym memberships.
If you get knocked back for the loan, check out your credit history and see how they are scoring you.
There are a few credit reporting agencies you can use, and depending on which one, you will get a credit rating between zero and 1,200 or zero and 1,000.
But for many people, buying a place where they want to live is not an option.
A growing number of Australians are now buying where they can afford (often in regional areas) and renting where they want to live. It’s called rent-vesting.
While it may get you in to the property market, it does come with risks — like difficulty getting a tenant, house prices going down or high maintenance costs.
So do your research before you buy.
Step four: What if I want to invest somewhere else?
Not everyone wants to invest in property — for some people, shares are where it’s at.
But the stock market can be pretty overwhelming if you can’t tell your bulls from your bears, or your dividends from diversification.
The good news is, you don’t have to be Gina Rinehart to invest in shares. But you do need to have some spare cash.
Judith Fox, the former chief executive of the Australian Shareholders’ Association, says to start with, only invest what you can afford to lose.
The bare minimum amount you need to invest in a stock is $500 — that’s a rule from the market operator, the Australian Securities Exchange.
You’ll also need to use an authorised broker to buy the shares on your behalf. Most beginners start with an online broker which is more of a ‘no-frills’ experience.
If the stock market isn’t for you, there are other ways you can invest.
For example, if you’re a budding entrepreneur, the idea of starting your own business might be appealing.
But it has its own risks as well.
And for the risk-averse, you could always keep your money in the bank. But be aware interest rates on deposits are very low right now.
Step 5: Sort out your super
Wait! Before you start telling yourself how you’re not retiring for ages, read this first.
The more organised you are in your younger years, the better you’ll be off later.
Part of that is due to compound interest, where you basically earn interest on your interest.
But sorting out your super now also means you’re cutting down on paying multiple fees and charges that could be going into investing instead.
The first thing to do is find out how many super accounts you have through the My Gov website. It’s pretty easy these days to roll them into one account.
But which one?
It’s time to do some research and work out whether a retail or industry fund is better for you.
Talk to family, friends and colleagues about what funds they in and what experiences they have, chief executive of the Association of Superannuation Funds of Australia Martin Fahy suggests.
One more thing…
Just remember, you’ve got to do what suits your personal circumstances.
So get advice from an independent financial planner if you need it.
And congrats on sorting out your money, future you will thank you.