Turning over a new leaf is always so positive and refreshing, and the start of the new year is the perfect time to do it.

It’s so much easier to spend money than it is to save it, but it’s worth doing the work to get into the habit and sticking with it. According to a research study published in the European Journal of Social Psychology, it takes on average 66 days to form a new habit. If you get started right now, you could start the second quarter of 2020 with a triumphant smile on your face.

Even if you haven’t made New Year’s resolutions, it’s important to have goals to keep motivated and to make the most of every day of your life. When it comes to your finances, setting and reaching your financial goals has the potential to impact many other areas of your life. Although money is certainly not the key to happiness, it enables you to do so many things to better your own life and the lives of others.

Here are 5 steps to take in helping you to reach your financial goals:

1. Check where you stand

It is often only when a credit application is denied that we look into the health of our credit score. If you don’t know where you stand, how will you know what to do? You can request a free credit report from a credit reporting body once every 12 months.

Your credit report will detail how you’ve handled any past or current loans or debts, as well as your repayment history. It may also contain information about any problems you’ve had meeting your repayment obligations, such as defaults, court judgments or bankruptcies. You can read more about “How to protect your credit score” in one of our previous articles.

Action points:

1. Request your free credit report from the credit reporting bodies listed on this page.
2. Review your report and address any issues you come across.
3. Put steps in place to keep your credit score healthy.

2. Boost your knowledge

Knowledge is power, so if you feel like you could be managing your finances better, educating yourself is a good place to start.

The Australian Financial Attitudes and Behaviour Tracker was launched by the Australian Securities and Investments Commission (ASIC) in 2014 to track financial attitudes and behaviours among adult Australians. In Wave 6 of the report, 35% indicated that “dealing with money is stressful and overwhelming”.

The National Financial Capability Strategy, led by ASIC, is focused on improving the financial capability of Australians, with the vision for all Australians to be in control of their financial lives.

Action points:

1. There are many online resources, such as ASIC’s MoneySmart website, that will help you to improve your financial literacy, so set aside time to work through the material.
2. Look for relevant training courses in the areas that you feel you need to develop.
3. If you have a financial adviser, they will be another source of valuable learning, so ask lots of questions and keep them on their toes.

3. Work on a budget

You may already have a budget, but it’s a good idea to review it and make adjustments where necessary. If you don’t have one yet, now’s a good time to put one together. A budget will help you control the money going in and out of your household.

You can use an Excel spreadsheet to set up your own template or choose one of many handy online tools that will make it easier for you. ASIC’s MoneySmart website provides a budget planner and some useful tips for budgeting.

Action points:

1. Make a list of all your monthly income and expenses. There are some expenses that are annual, so don’t forget to include those. You can refer to your bank statements, bills and receipts for the past year to make sure you include everything.
2. Total up your income and your expenses. Ideally your income should exceed your expenses, so you can meet all your obligations and still have money to save.
3. Differentiate between necessities and luxuries, i.e. what is absolutely necessary versus what is just nice-to-have. For example, rent, utilities and school fees would be necessities, but eating out and going to the spa would be luxuries. It’s not to say we shouldn’t enjoy the luxuries of life, but that we need to ensure the necessities are covered first.
4. Allocate your total income to your expenses, checking to see where you can cut down on luxuries. It’s always a good idea to save as much as you can. If you allocate specific amounts to each expense, it will help to control what you spend. Once you have set these amounts, stick as closely to them as you possibly can.
5. Set aside an amount to pay for unexpected expenses so you have the money available if you need it.

4. Pay off your debts

In this day and age, borrowing money is extremely easy, and it doesn’t take long for the debts to pile up. December tends to be one of those months that spending hits an all-time high, as many people splurge on gifts, entertaining and holidays. Seeing the total on your credit card statement in January can be quite a shock to the system!

According to the Household Income and Wealth, Australia, 2015-16 report released by the Australian Bureau of Statistics (ABS), 29% of households in Australia were found to be overindebted and 77% of these households lacked sufficient liquid assets to cover a quarter of the value of their debts.

Action points:

1. Make a list of all your debts including the applicable interest rate for each one.
2. Sort the list into the order in which you want to pay them off, e.g. the debt avalanche strategy starts with the debt that has the highest interest rate and the debt snowball strategy starts with the smallest amount owing.
3. Based on your budget, start to pay them off working your way down the list. Set up automatic payments so you don’t spend the money elsewhere.
4. Celebrate each debt paid off (but try not to make more debt while celebrating).

5. Plan to save

There are many different goals for saving – it could be for your children’s education, your bucket-list holiday, your dream home, or your retirement. Whatever your goal may be, the sooner you start, and the more you save, the better the outcome will be.

Aside from your personal goals, it’s important to have savings you can access if something unexpected happens, e.g. you lose your job or fall ill. It’s not something you want to think about, but if you make provision for the eventuality, it will give you peace of mind.

The ME Household Financial Comfort Report provides insights into the financial situation of Australians based on a survey of 1,500 households. The report found that 48% were saving each month and 41% were breaking even, i.e. just covering their expenses. It’s a good sign that most households were meeting their financial obligations, but more than half were still not saving. If you aren’t already saving, let’s get started right now.

Action points:

1. Based on the budget you prepared, you should hopefully have an amount set aside to put towards savings. Open a separate account for this money and set up an automatic payment for the day you are paid so that you are not tempted to spend it.
2. You could open a term deposit to limit immediate access to your funds. The idea is to make the funds more difficult to access to prevent you from spending it, but still accessible if something happens and you need it.
3. Consider speaking to a financial advisor about the most suitable savings channel, especially if your savings are significant.

At FutureNow Finance, we can help you to put plans in place to reach your financial goals. Call us on 1300 013 730 or email hello@futurenowfinance.com.au

If you know of anyone who needs help with reaching their financial goals, please share this article with them. You could help them towards fulfilling some of their New Year’s resolutions for 2020!