Debt down under is something that requires a fresh approach. Why? Because according to the Australia Reserve Bank (ARB), the ratio of household debt to disposable income in Australia hit a record high of 189.7 percent in March 2019 – with outlooks for 2020 calling for a miracle to turn the tide. Finance experts have continually speculated that the ratio will hit 200 percent soon, making it the highest in the world.
With that in mind, it’s particularly important to reflect on your personal finance to avoid becoming over-indebted. How you’re budgeting your money, your spending habits, and debts are some of the things you should assess. Failure to take control of your personal finance can lead to piling debts, failed goals or even insolvency according to Finance Fox.
Based on some local information for the Australian market from the resource mate.com.au, we were able to gain some valuable insights and tips. Below we’ll share some interesting personal finance tips to help you learn more. Read on!
What Is the Meaning of Personal Finance?
Personal finance basically refers to how you manage your money, savings, and investments. It’s a blanket term that covers insurance, banking, budgeting, investments, mortgages, taxes, estate planning, and retirement planning.
As an individual, personal finance is all about meeting your financial goals, saving for the future, and planning for retirement. In this case, your financial health depends on your expenses, annual income, desires, and living requirements.
It’s about having a sound plan for your income and taking advantage of things like tax breaks, discounts, and offers to save more. Understanding your financial needs and being financial literate can help you make sound decisions about your budget and spending.
Roland Bleyer, the CEO and founder of Mate.com.au says that “for too many years, Australians were loyal to their banks, did not switch their credit card and savings accounts and paid a heavy collective penalty for this. The nation is now becoming smarter, relying on technology to help them find better deals by comparing the market and switching to financial service providers with much better deals”.
Whether it’s a wedding, starting a business or paying for education, millions of Aussies look to personal loans for a financial helping hand. These loans can be used for almost anything, but not all loans are similar.
You can opt for a secured or an unsecured personal loan. Secured loans require you to place an asset as security. In this case, the creditor will sell the asset if you fail to pay the loan. With an unsecured loan, the creditor expects you to make repayments using your income.
Before applying for any loan, ensure you’re capable of paying it back in full together with the interest. Also, strive to find loan products with the best rates to keep your repayments low. Be sure to have a great credit score, anything between 622 and 1200, to get the best rates.
You also have the option of picking your desired rate: fixed-rate or variable rate. A fixed-rate loan means your agreed rate doesn’t change regardless of changes in interest rates. It can be a good option if interest rates increase; this means you’re protected. A variable-rate means your repayments will change over the course of the loan.
Having a savings account can boost your personal finance goals significantly. Basically, these accounts allow you to earn interest on your savings. The more you save the more you’re likely to earn. Avoiding making regular withdrawals can also earn you better rates.
The secret to getting the right account is comparing rates offered by different banks. A tool like Mate makes comparing savings accounts a seamless task. The problem is that most banks that offer the best rates have introductory periods, which can be about 4 months. This means the interest rate reverts to the standard rate, which can be less than 1 percent, after the period.
Or, you can consider savings accounts that have a term deposit. With these accounts, you’re not allowed to withdraw money from the account until the end of the term. Failure to adhere to this condition can lead to a hefty penalty. The trick with a savings account is to save more and withdraw less.
Credit cards are ideal for those people who want to carry less cash around. In Australia, you have access to over 200 options when it comes to credit cards. However, these cards have varying rates and eligibility requirements.
There are also different types of cards, each designed to meet the needs of the targeted group. These cards include low-income cards, low-interest cards, business credit cards, student credit cards, prestige credit cards, rewards credit cards, and no annual fees cards. These cards have different features and credit limits.
When looking for a card, consider the features, such as insurance cover, travel extras, and rewards. Some cards offer interest-free days as long as you clear your monthly balance on time. Also, if you like traveling, opt for cards that have no foreign transaction fees.
Basically, the right card for you depends on how much you’re willing to pay for the card. Typically, big spenders get more rewards, higher interest rates, better features, and higher credit limits.
Personal Finance Strategies
A 2018 study showed that about 86 percent of Aussies didn’t know their personal expenses. If you want to control your personal finance, be sure to create a budget to monitor how you spend your money. For example, you can have 20 percent of your income going into savings and debt repayments.
Be sure to set money aside for an emergency fund. You don’t want to dip in your savings every time you have unexpected expenses. Financial experts recommend having an emergency fund worth three to six months’ worth of living expenses.
Keep your debts as low as possible and strive to pay them off in time. Also, use your credit cards wisely. It’s advisable to keep your account balances below 30 percent of your total credit. Be sure to avoid hurting your credit score by paying your bills on time.
Most people will need about 80 percent of their salary during retirement. So, remember to save enough for retirement. Starting to save early could see you benefit from the power of compounding interest.
In a country where the rent to income ratio is disproportionately high, life can quickly turn gloomy when you’re not serious with your personal finance. With unexpected expenses and future financial responsibilities like school fees, you really need to watch how you spend your money.
You can start today by creating a budget and a savings goal. This way, you’ll strive to focus on your financial aspects that really matter. Saving more and spending less can really go a long way in improving your financial health.