Four Top Tips to Spring Clean Your Finances

Spring Clean FinancesSpring is upon us here in Australia and that means you should be getting down-and-dirty with some spring-cleaning action.  But before you bring out the mop and bucket, first grab yourself a pen and paper and get started on spring cleaning your finances.

Money, or a lack of it, can be a major cause of stress and worry. In fact 40% of Australians admit to being “stressed out” over money, with women more likely to be worried than men. So because I’d rather spend my summer holidays worrying about whether the weekend weather is going to be beach perfect, I’m getting my finances in order now.

It’s Time to Start Probing

You know those bank statements you’ve been tossing onto your desk in a big pile all Winter. Go get them out and open them. Yep, all of them. You’re going to go through each statement line by line with a view to working out where all your money is going.

Paying for a gym membership whilst your gym bag has spent the last six months hanging out in the bottom of your wardrobe? Have a Quikflix subscription but never have time to watch the movies they send you? Stacking up your magazine subscription next to the couch for that mystical day when you’ll have time to read them?

It’s time to make some cuts. Get on the phone and start cancelling all those things you are paying for but aren’t using. I’m sure they were a great idea at the time, but now you’re just throwing money away.

Pro Tip: Need motivation to start exercising outside of a gym. I use Runkeeper combined with Pact to track my runs and get paid for it!

Screw Down Your Suppliers

Alright, you’ve been through and cut out all those unnecessary expenses coming out of your account. Now that you’re left with your essential items, like utilities, phone and internet, and cable (insert argument about cable being essential/non-essential here), you’re going to start screwing down your suppliers. Mind out of the gutter please, I’m talking about getting the cost down.

Get on the internet and start shopping around. If you find a better deal on something you’re paying for, call your supplier to match or better yet beat it. If they’re offering enticement deals to new customers, ask for the same thing or tell them you’re walking. Financial belt tightening hasn’t just affected households, and businesses know it’s easier to keep an existing customer than find a new one.

Pro Tip: You can use online comparison services to compare prices on a range of products, but remember they often don’t represent all providers in the market. If you can, find a government-backed comparison service to get the full picture.

Get Yourself an Insurance Policy

What would happen if you were unable to work for six months or more? How long could you last before you couldn’t pay the bills? Of course having an emergency fund can save you from minor stress, but if you’re injured or sick and can’t work for a long time then you’ll need a bit more money to tide you over.

Insurance is a great way to get some peace of mind and reduce stresses about money. Go through all your insurance policies and make yourself aware of what you are covered for. Most people think about insuring their house and contents, car and expensive items, but often forget about or under-insure for the more important things like Life insurance and Income Protection cover.

If you’re young and don’t have kids you can probably get away with not having Life insurance right now. But at the very least you should get some Income Protection insurance to cover your basic living expenses. And in Australia, this insurance can be funded from your superannuation so it won’t have an impact on your take home pay.

Pro tip: You can do the research yourself, or find an independent financial advisor to do the leg-work for you. Make sure your adviser works with a range of insurance providers and is certified by the FPA.

Start Planning Your Retirement

When you’re young, retirement seems so far away. But unless you enjoy spending all day watching Days of Our Lives and eating HomeBrand groceries, you are going to need more money to live on than the pension. Start thinking about your retirement when you’re young and when the time comes you can live it up on the Senior Princess Cruise instead.

First thing is to make sure that all your superannuation is in the one place. If you’ve changed jobs a lot then chances are that your money is scattered across a few accounts. Thankfully it’s easy to search for and bring all your super into the one place.

You should also review your current super fund to see how it is performing and what the fees are. You should make sure that you’re not paying too much in fees – even a 1% difference in fees can have a massive impact to your retirement balance.

Also use this time to review the investment option that you are in and decide if it’s right for you. Most funds default to a Balanced option which is around 50% growth assets. But if you’re young you’ll want to take advantage of more aggressive options. A good general rule is that the percentage of growth assets should be 110 minus your age. So someone in their 20s or 30s should be invested in a 80% to 90% growth option.

Pro Tip: Look at whether you can get tax breaks for contributing more to your or your partner’s superannuation. 

Whew, that seems like a long To Do list. But imagine the satisfaction you’ll feel once you’ve saved yourself a bit of cash and sorted out your financial future. That’s even better than finding $2 behind the couch cushions.

This post was first published on 5 September 2013.

How To Boost Your Super Now to Retire Rich Later

Last week I shared my philosophy on how to get a little bit richer everyday.

Today I want to talk about a smart way to save your money and pay less tax by putting extra money into your superannuation.

Boost Super Woman

Boost Your Super With These Handy Tips (Source: SimonQ/Flickr

Okay, I can feel you roll your eyes at me. “Super is for old people to worry about” or “Who cares? It’ll be 40 years until I can access it”.

Now I know it can be a stretch to even think about your super when you are madly trying to scrounge together enough money for a house deposit, or putting all your hard earned into your next big overseas trip. But pay a little attention to your super now and it could have massive benefits later on.

Let’s look at the numbers. A 30 year old on a salary of $60,000 with a balance of $25,000 in super could expect to have around $424,618 at age 65. But someone salary sacrificing an extra $50 per week into super could expect to have $560,559 when they retire. That’s over $136,000 extra.

That’d add up to a pretty nice luxury cruise with your mates where you can reminisce about the days when Facebook was cool.

Okay so how does it work?

The Magic of Compound Interest

Einstein called compound interest magic, but it’s not really (I mean, what would he know?). It’s just the basic idea that the longer you have money saved, the bigger it grows.

Putting extra money into superannuation when you’re young means that your money has a longer chance to grow. And the sooner you start, the more time your money has to build into a decent retirement nest egg.

Salary Sacrificing Your Pre-Tax Dollars

With all these baby boomers on the peak of retiring, the government has basically figured out that they can’t afford to fund people’s retirement anymore. The pension only stretches so far, and for our generation it’s probably going to be a pretty small payment.

Because of this, the government has tried to make putting money into super as attractive as possible. They do this by taxing super contributions and earnings at a much lower rate than most people’s marginal tax rate.

Salary sacrificing is basically a way to invest your pre-tax dollars in super. Contributions made to super are only taxed at 15%, and you reduce the amount of tax paid on your earnings at the same time.

Even putting away $50 a fortnight can help boost your super and reduce the amount of tax you pay, putting you further ahead than if you’d just taken your full payment as after-tax salary then invested it.

If you want to see exactly how your income would be affected you can use this calculator. Play around with the figures and see what salary sacrifice contribution would work for you.

I figured out that $170 in pre-tax contributions a fortnight, only reduced my take home pay by $130. And because that $170 is taxed at 15%, it means more money for me overall.

Government Co-contribution Helps You Grow Your Super

People on a lower salary can also take advantage of the government’s co-contribution scheme for super. Basically, for every dollar you put in up to $1,000, the government will contribute up to 50 cents. It works on a sliding scale and currently cuts out for people earning over $48,516. That’s free money people!

This is also a great option for people who are not working at all – say if you are taking time off to care for the kiddies or travelling long term. With no employer putting money in for you, it’s important to keep up those contributions so you aren’t stuck at home watching Friends re-runs when you’re 72.

Have you got any other ideas on how to grow your super? Could you find an extra $1,000 a year to contribute to your super fund?

Image source: Simon Q/Flickr