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Shivani Gopal

Shivani Gopal

August 08, 2019
| Women's Advocacy

How to get your financial freedom back

Have you ever thought that you should be further along on your financial journey than you currently are? Most adults have this thought, and often they think it’s too late to turn things around. We’re here to tell you that this is simply not the case. Here are 6 tactics to get you back on the path to more confidence, security and financial freedom.

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The current savings rate

Since the 1970’s our household savings rate has dropped from 20.6% to 1%. Households are just not saving enough money. You know It’s really bad when almost half the population doesn’t have $500 spare to be able to face an unforeseen emergency.

“it’s like wondering around in the land of the poor people, hoping not to take up residence” — Elizabeth White.

Student loan debt

Australian student loan debt is predicted to hit $185.2 billion dollars by 2025. That will account for 46.1% of the national public debt. This is projected to put 5 times more strain on the Australian taxpayer. This is not to mention the strain that it will put on graduate employees who are trying to start their lives. Young people going into the workforce will bear the weight of student debt at roughly $25,000 to $50,000, and this will take them 16 to 18 years to completely pay off on average. When we start our professional lives in debt, it’s no wonder that we go through life thinking that it’s the norm.

Most of us were really optimistic about our savings goals when we first started in the workforce. But, we soon realise that it’s way harder than we anticipate.

ASIC’s Smart Money shows the top 3 reasons that people break their saving goals:

  • 41%: Unexpected expenses or change in financial circumstances

  • 27%: Lack of willpower

  • 17%: Goal was unachievable.

We have a personal finance crisis. When we don’t have financial security and a wealth plan, we don’t have confidence, we don’t feel secure and we can’t look eagerly to our future with any certainty. No one wants to live like that. There are a lot of things that suck our hard earned money away, and we need a simple system to help us take care of our bills and our future savings if we want a safe and happy retirement.

6 tactics to save more money

The key is to simplify your cash flow as much as possible. When things are complicated, they are difficult to manage and worse, they just never get done. Here are six simple tactics to help you save more money and give you more financial security.

1. Automate expenses and savings

Use your online banking system to auto pay or auto transfer money to your savings and expenses accounts as soon as you get paid. They key here is to set up your cash flow once and let it run itself while you monitor is and make small tweaks. This saves you having to constantly make decisions around bills and savings, and it locks in a positive financial future that you can plan for.

2. Minimise the number of credit cards you have

Consolidate the number of credit card debt you have and cut up all the redundant cards. You don’t want to spare credit cards in your wallet or purse when you’re out and about. Consolidating lets you use tackle one expense instead of many. Now, you’ll be able to monitor, plan and be in control of your debt.

3. Roll over your super and increase your contributions

About 40% of Australians have multiple super accounts from their different jobs over the years. This is a problem because that hard-earned money is wasting away and getting eaten up by fees. Pick your favourite super fund and ask them to roll all your super from other various funds into one main account. Once you’ve done this, you should consider making individual super contributions by speaking with your payroll or HR team and setting up a ‘salary sacrifice’ which will take 4.5% from your pay and add it to the 9.5% contribution from your company. This means that your super contributions will be at 15%. Talk about setting yourself up for a great retirement.

4. Have an emergency fund

One of the main problems that people have around saving money is that they keep dipping into their savings for unforeseen expenses. An emergency fund is a great way to set aside money for unexpected life events i.e. car breakdowns, sickness and family emergencies. Your emergency fund is a buffer between unexpected life events and your precious savings account. A good habit is to automate 5% of your income to your emergency fund and just forget about it until life throws you a curve ball.

5. Negotiate prices when possible

Negotiate prices whenever possible. This is especially effective when you are signing up to a plan or even going into a brick and mortar store to buy goods. Don’t shy away from calling up your utility providers and asking them for a better price on your electricity, internet and water, too. It’s reasonable to negotiate for a 10% to 15% off your regular bills, especially if you’re a long-term customer. This alone could save you thousands of dollars a year just by picking up the phone.

6. Delaying purchases

When we see something we want, it can be really hard to walk away and not break the budget. If you find it hard to control your retail impulses, try delaying those purchases by 24 hours. What will happen is that the novelty will wear off, you’ll forget about it or you could even find a better deal elsewhere. If you still want to buy that thing after the 24 hours, then by all means, buy it. It must be important and something that means a lot to you.

The 20, 30, 50 rule of thumb

This is a simple and sustainable strategy that lets you use your income to pay your bills, save for the future and have fun.

The rule is simply to divide your net income into 3 chunks.

  • 20% for long-term savings

  • 30% for fun

  • 50% for Essentials: bills and expenses

This may sound like an oversimplified financial plan, but it can be hard work to implement. The biggest challenge comes when you have to limit your ‘bills and expenses’ to under 50% of your current income. This forces to you look at how money is coming in and out of your accounts and monitor spending with a fine tooth comb. You may have to set up budgets and make some necessary cut-backs to be within that 50% margin. This is the same with your ‘wants’ — you have to stay within that 30% margin, meaning that you have to prioritise the most meaningful wants and remove the others. Just these two activities alone will put your wants and needs into proper perspective — you need electricity, but you don’t need Foxtel!

The best part of the plan is that you can confidently sit back and know that 20% of your income is being invested in your future through regular savings. Again, don’t leave it up to your goodwill to decide what to save every time you get paid, decide in advance and automate it!

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