Time to get serious about your finances this New Year?
January 1 is racing towards us. Not only do you have the sunshine and lazy days of Christmas and summer to look forward to, this New Year brings in a whole new decade.
Even if you usually skip the New Year’s resolutions, you might be thinking this decade is the decade to really get on track with your fitness, your health – and your finances.
Whether it’s getting that house deposit together, or getting a rainy-day fund set up, here’s some ideas to get finances on your New Year’s list and help you to take action.
Switch from paying interest to receiving interest
Not only does interest earned increase your savings balance – compounding interest brings you the wonder of earning money for nothing, as you earn interest on interest.
Compounding means the effect of returns adding to returns to boost your investment or savings balance over time- without you having to put more away.
In this article from Milford Asset Management, fund managers have tried to explain how important it is, particularly for long-term savings habits such as KiwiSaver or other managed funds.
Here’s a quick example: If you have a starting balance of $10,000, withdraw nothing over the year, and make 5 per cent a year on your savings, after fees and tax (assuming the interest is only added at the end of the year).
After a year, you would have $10,500. After the second year you would have $11,025. In the first year, you earned $500 in returns but in the second you earned $525, without adding anything yourself.
If you have a debt, such as a credit card or store card, compounding interest could be working the opposite way for you. If you are only paying off the minimum balance each month, or, even worse, increasing how much you owe on your card each month, you could be paying interest on interest each month.
Know what’s coming in and out
Making positive changes to your financial well-being relies on you being in control. This means knowing what’s coming in – and more importantly – what’s going out and where it’s going.
It might seem boring, but there is a reason budgeting really helps make a difference to growing your wealth. Start the year with a savings and spending plan – and then stick to it.
Sorted offers a free budget planner that’s worth checking out if you’re not sure how to start.
Pay into your savings first
If you’re like many people, you pay the bills and the extras first, and then try and save what’s left.
However, once you have done your budget and know what you’ll be saving each month, flip your spending round, and pay your savings first. Taking it out your account and putting it aside means you will be less likely to ‘dip into it’ should you see something you want to buy. Out of sight usually means out of mind – and more likely savings success.
Make the pennies count
The old saying goes ‘make the pennies count and the pounds will look after themselves.’ The adage still holds true today. You may think a few dollars here and a few dollars there won’t make any difference. But they all add up. Multiple credit cards usually mean multiple monthly fees. Being on a high-power user rate when you are a low user rate could cost you $10 or more dollars a month. Buying lunch each day could cost you between $5 and $10 more than making it.
You could save hundreds, or even thousands, of dollars a year, by taking the time to work out where unnecessary money is going and cut back on those small costs. Your savings goals will thank you for it.
There’s a hole in my budget
Do you sometimes wonder why it feels like you’re not getting ahead, even though you’re not really spending much? Sometimes, the problem might be that while you’re not spending a lot in one hit, the little purchases here and there can really wreak havoc on your budget. A check through your bank account should show you whether you have “leaky bucket syndrome” – and all those little, maybe meaningless, purchases are adding up to one big drain.
Like to discuss your options?
If you are looking for ways to free up some cash, and would like to learn more about your options, please get in touch.