Money 101: Understanding Your Finances For The Future

It should come as no surprise that managing your finances (i.e. how much you spend, save, and invest) can have a significant impact on your life. But surprisingly enough, many people don’t know where to begin when looking at their finances. It’s a task that can easily become overwhelming. But with a few tips to set your best foot forward, understanding your finances and preparing financially for the future can be made oh so simple. Here’s how to get started:

Spend Less Money Than You Make

This has been the golden rule of finance for centuries; however, in 2016 it can be very easy to find yourself in credit card debt, or stuck in some kind of payment scheme you just can’t get on top of. If you spend exactly as much as you earn in a year, it will be almost impossible for you to be prepared for those unexpected emergencies. That is why spending less than you earn is so important – you give yourself the freedom to save, to prepare for the future, to invest, and to account for unexpected crises that life can throw your way. 

Finance Planning For The Future

You don’t need a crystal ball to see into your financial future – the power here comes from planning. While you may not be at a point in your life to start planning for retirement, it is important to look ahead of the current month and plan accordingly. Establishing an emergency fund is an excellent way to ensure you always have a bit of extra cash in the kitty, to account for those unexpected medical bills or mechanics fees.

Make Your Money Work For You

Don’t lock away your hard earned savings into a stagnant bank account. Invested money will earn you more money over time. Investing can be quite an overwhelming area of finance. Starting small and taking the opportunity to learn what you can are valuable keys to success in this space. When it comes to investing there are a wide variety of options for you to choose from. From long-term investments like property or shares to personal investment in yourself through business ventures or education, there are many ways to better yourself financially by channeling your money to work for you.

Find An Appropriate Bank Account

In Australia, there are so many different banks out there, each with a multitude of differing bank accounts and features. That is why it is important to find a bank account that works best for you. Preferably, one that does not charge high account fees, that offers a competitive interest rate and provides you with a debit card option. It may mean finding a banking institution different to the one you are currently with. Do your research now to save yourself time, effort, and valuable money later.

Set Up A Budget

Do you really know where you’re spending your money? Creating a budget, even a very basic one is the best way to keep track of your regular expenses against your weekly income. Getting into the habit of organising your bills and tracking your expenditures will aid in preventing financial problems before they start. There are a variety of tools available to help you track your money and maintain a healthy budget. Ideally, as discussed previously, you should not spend more than you make. So if you can see your budget starting to become over inflated, you know where you can reel in your spending. For some, skipping your morning cappuccino will keep just enough extra in your pocket. For others, they may need to seriously overhaul their spending habits.

Use Credit Cards Wisely

Essentially, don’t go into debt. The appeal and ease of use a credit card offers can become a dangerously tempting thing. Regardless of how easy it may be to obtain a credit card, it can be incredibly overwhelming if you find yourself in severe credit card debt! This kind of debt can put you in a financial hole that is extremely difficult to climb out of. At the end of the day the message is simple: don’t use a credit card to buy things if you don’t already have the money available in your savings. If you cannot afford to buy it with your savings, you cannot afford to buy it on credit. It may sound silly to only use your credit card if you have the savings funds available, but that is the key to financial security with a credit card.

Many people find themselves in debt or financial trouble with credit cards because they don’t understand how interest on repayments works. Ideally, your monthly credit card repayments should be to the full value of your credit card balance, so as not to be charged interest against your repayments. If you only ever make the minimum repayment each month, you will only just be paying back the rate of accrued interest charged, and not clearing your debt. This can become a little confusing – if you fear you are in trouble with managing your credit cards, book a consultation with your financial advisor to discuss.

Build A Positive Credit Rating

Credit cards, bank accounts, paying bills on time – all of these activities help build your positive credit rating. Credit ratings are what the bank looks at to determine whether you are capable of managing your finances. If you do not pay your bills on time, if you have large outstanding debt, or if your bank accounts are continuously in overdraft, then your credit rating will be negative and weak. Banks use your credit rating to determine how large of a loan you can take out, how much you will be charged in interest, and how many lines of credit you can have against your name (i.e. credit cards, personal loans, mortgages). Therefore, the better your credit rating, the better your opportunities will be with financial institutions. There is quite an incentive in this regard to managing your money wisely from the very beginning.

Looking to seek advice from a reputable financial advisor? Have specific questions that you'd like answered? Do you want peace of mind to continue to do what you are good at, knowing your financials are being managed?  We're here for you! Just contact us and we'll be glad to assist. 



 

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