2020 experienced many world-shifting events including the…
- Devastating bushfires around Australia
- Passing of Sean Connery, Eddie Van Halen, and Kobe Bryant
- Black Lives Matter movement
- Announcement of Prince Harry and Meghan Markle leaving the Royal Family
- Convicted verdict of Harvey Weinstein
But arguably the most memorable event of 2020 was the deadly Coronavirus (Covid-19)!
Whether it was our super, savings, investments, insurance, or debts, for many people, personal finances took a hit during the pandemic! As a result, we have learnt valuable lessons about the importance of being financially prepared for periods of uncertainty and disruption.
Here are 5 ways you can future-proof your finances!
Tip #1 – Set up an emergency fund
This means if your income suddenly stops, like what happened to many Australians during COVID, then you have a short-term buffer to help you prioritise payments and debts for immediate needs, like housing, food, and utilities. As mentioned above, we suggest putting approximately 7% of your income into your emergency fund. It’s a great idea to build up an emergency fund to cover 6 months of expenses.
Tip #2 – Pay yourself first
Having a personal budget can help you better understand how much money you have now, how much you might want to save for the future, and how much you might be able to put aside for emergencies. Many people wonder where their money goes because by the time they get to the end of the week, fortnight or month, the bank account is looking empty! Click here to access our free savings working and ideal budget planner.
In working out your personal or family budget, it’s important to set aside money to pay yourself first. One example of this is our 50/50 rule! Basically, 50% of your income should be allocated to your day-to-day living expenses, and the remaining 50% should be for securing your home and your future.
We work on roughly the following percentages of your income, but you need to do what is appropriate for your lifestyle:
- 22% – food and groceries
- 8% – transport for your own travel (petrol, vehicle expenses)
- 5% – medical and health
- 5% – recreation, entertainment, and fun
- 4% – household bills
- 3% – personal and family education
- 3% – clothes and shoes
The remaining 50% of your income can then go towards your mortgage repayments (30%), investing in your future through property investment, super or shares (10%), emergencies (7%) and dreams (3%). To learn more about how we can help you on your property investment journey, click here.
Tip #3 – Make sure you’re on the best deal
Another way to make sure that you’re not spending more money than you need to, is to regularly review what you’re paying for:
- Electricity and gas
- Car insurance
- Home and content insurance
- Internet and phone
We suggest looking at comparative sites such as:
- Whistle Out (internet and phone) – www.whistleout.com.au
- Compare The Market (insurance) – www.comparethemarket.com.au
- Energy Made Easy (power and utilities) – www.energymadeeasy.gov.au
At Rise High we understand that your mortgage is often your single largest expense and the more we can save you on your loan repayments, the faster you can achieve your goals. To learn more about how we can help you to refinance to get a better interest rate or consolidate debt to take control of your finances, click here.
Tip #4 – Invest in your future
The sad reality is that most Australians do not have enough superannuation at retirement age, according to the latest research undertaken by The Association of Superannuation Funds of Australia (ASFA). Research shows that the average superannuation balance for a 65-year-old Australian male is less than $200,000, whilst the average superannuation balance for a 65-year-old Australian female is less than $120,000. Whilst $200,000 might sound like a lot of money, if you need this to last you through a 20-year retirement, this leaves you with just $10K per year to live on. Is that enough? Even if you had $400K in super at retirement age, this still only leaves you with $20K per year to live on. Still not enough!
The saddest part about it is that most Australians (especially young Australians) do not even know what their superannuation balance is, or worse yet, do not even know where all their superannuation is (they might have multiple superannuation accounts including some they have forgotten about).
It is important to think about what lifestyle you want, as this will ultimately help you to work out what net assets you need to build to give you the lifestyle you want in retirement. Obviously, the greater the lifestyle you desire, the more wealth and net assets you must build before you can retire.
If you are finding it difficult to answer the question of how much annual income you will need in retirement, a good rule of thumb is to aim for a retirement income of at least two-thirds of your employment income. Assuming all your personal and home debt has been paid in full by the time you retire, two-thirds of your current employment income is likely to enable you to maintain your current lifestyle.
Tip #5 – Protect yourself and your family
COVID-19 has certainly shown that the unexpected can happen. There are simple things you could consider today to help future-proof your finances for your loved ones if anything should happen to you, including life insurance, nominating beneficiaries, and having a valid will.
Overall, the best thing you can do to ensure you are financially prepared for periods of uncertainty and disruption is to understand your financial position and make your money work better for you! With a great mortgage broker by your side who has a good understanding of your current situation and your goals, you can work together towards achieving all your money, finance and property goals.
If you want to:
- Clearly identify your goals;
- Know where your money is going;
- Future-proof your finances;
- Implement a plan that aligns your spending with your values;
- Have a plan for your future; and
- Retire on your own terms!
Then the Rise High Money Mentor Program might be for you. Learn more by clicking here.