Financial Wellbeing

5 Tips To Get Your Finances In Top Shape

The world, and the way we look at it, has changed enormously in the past two or three years. We have all had to focus more than ever before on our health and wellbeing. One aspect of our wellbeing that can sometimes be overlooked is our financial wellbeing.

In uncertain times, having confidence in your present and future financial wellbeing is important. So let’s take a look at what financial wellbeing actually means, and a few strategies you can implement to improve your present and future financial security.

What Is Financial Wellbeing?

There are a number of definitions around what financial wellbeing means. The Melbourne Institute, Applied Economic and Social Research[i] have a very detailed description:

“The extent to which people both perceive and have:

1. 1. Financial outcomes in which they meet their financial obligations
   2. Financial freedom to make choices that allow them to enjoy life
   3. Control of their finances
   4. Financial security

Now, in the future, and under possible adverse circumstances.”

It’s easy to assume higher income means more financial wellbeing, and there is a strong correlation, but it is not the only factor at play. The Melbourne Institute model has determined that personal & household characteristics, external conditions and financial behaviours, contribute to a person’s financial wellbeing. In fact, in a recent report they stated:

“A key finding of this report is that financial wellbeing is strongly positively related to income, wealth, and other resources but that it is also distinct from these characteristics. More resources expand people’s available spending, savings, and other financial choices, but people still must manage those resources. High personal debts, other obligations, careless spending, and failures to save or take financial precautions can lead to low financial wellbeing, even under relatively affluent circumstances.”

Which means, your financial wellbeing is not out of your hands.

Improving Your Financial Wellbeing

Whilst there is a correlation between income and financial wellbeing, you can take steps to improve your financial position, even when your incomings are not as substantial as you might like. Here are our five top tips for making the most of your income in order to secure your financial future.

1 – Prepare A Budget

We’ve talked about this one before, but it’s impossible to stress enough how much difference having a budget, and sticking to it, will help you. There are a number of ways you can prepare a budget, so find one that works for you.

One method is the 50/30/20 rule. This means assigning the first 50% of your income to needs, such as rent/mortgage, food, utility bills. The next 30% is allocated to wants. Leisure, socialising, new clothing, entertainment. The final 20% is allocated to debt reduction (other than your home mortgage) and savings.

It can be tempting not to include that 30% for wants. Or to reduce it. But it’s important to include discretionary spending. If you cut out all the ‘wants’ in life you will soon find yourself struggling to stay on budget. So make room for the little joys. This is a long game you’re playing here.

2 – Prepare A Debt Pyramid

A great way to understand your position and work out how to better manage your debts is to create a pyramid.

Create a list of all your debts, including your credit cards, personal loans, car leases, student loans; what the outstanding balance is; the interest rate; and any fees. Then order the list from the highest interest rate, to the lowest.

Seeing what you owe listed in black and white can be confronting, but it will give you a clear picture of where you are, so you can map your way out to a debt free position.

Consider what debts you can roll into others with lower interest rates, and prioritise paying off those debts with the highest interest rate, because these are the ones costing you the most money.

3 – Create A Savings Plan

The key to saving, especially if you have limited resources or high debt levels, is to save little and often. It’s tempting with savings to think you’ll put some away when you’ve paid off the credit card/car loan/other debts. News flash, that time may be a long way down the track, and who knows what could happen in between times. So start saving today. Even if it’s only a small amount.

If you find saving difficult, set up a direct debit to take the money out of your daily account into a higher interest paying account the day after payday. If you don’t see it, you won’t miss it. As you pay off the debts you consolidated during #2, or when you get a pay rise, you can increase the amount you are saving. You’ll be surprised how quickly it adds up.

And just like you would with a home loan, shop around for the best rate. If you have trouble keeping your hands out of the cookie jar, once you have sufficient, think about rolling some of it into a Term Deposit.

It’s easy for ‘saving’ to go by the wayside in the demands of daily living. Prioritise it in the way you would paying a debt. Consider it a debt to your future financial wellbeing. Future you will thank you later.

4 – Emergency Funds

Create a separate account where you keep ‘emergency funds’. Because you never know when your car might break down, your plumbing might need a major overhaul, or you need an emergency medical procedure. How much you should put in this account will depend on your lifestyle, commitments and income, but good general rule of thumb is 3-6 months of living expenses.

If you have need to dip into this account, top it back up as soon as you can, so you always have a ‘buffer’ between you and financial hardship.

5 – Professional Advice

It can be difficult to implement financial wellbeing strategies, and to know which products are best suited to you and your needs. A financial advisor can give you realistic, well-informed advice about your personal circumstances, ensuring both your present and future wellbeing.

If you would like advice on how to improve your financial wellbeing to ensure a secure financial future for you and your family, Manly Financial Services have the knowledge and experience to help. Give us a call on (02) 9976 3388 or reach out to us via the various options on this website.

Interested in knowing more?

References:
[i] https://melbourneinstitute.unimelb.edu.au/data/taking-the-pulse-of-the-nation-2022/2023/australians-face-challenging-budgetary-constraints