FINANCIAL FITNESS TEST – ARE YOU GETTING IN YOUR OWN WAY?

If you are healthy and working, you should be able to save enough money to live the life you want. But if it’s as simple as that, why do so many people struggle?

Your own bad habits are usually the biggest obstacle standing between where you are now and where you want to be.

Having the right attitude towards your everyday spending is much more important than investing in the right stocks or property.

It’s time for a bit of self-reflection and honesty. Start with this five-step checklist and you will be well on your way to financial freedom.

 

  1. Ask yourself: What do you own, and what do you owe?

Grab a piece of paper and make two columns. In the left column, list every asset you have. In the right, list everything you owe. This will give you an important understanding of your net worth and whether you can afford to sell a few things to free yourself from debt.

  1. Make a list of what you earn and what you spend.

Same thing here – write down everything you make (after tax) and then have a go at working out how much you spend. If the balance is negative, ask yourself – are you letting money slip through your fingers?

BEEN MADE REDUNDANT? JUST BREATHE

The business sector has been somewhat of a war zone in the last few years and businesses of all shapes and sizes are dropping like flies. From the mining downturn to the collapse of the whole automotive industry, job security has never been so shaky than it is right now. Unfortunately a growing army of Australian workers are facing the facts that redundancy is a very real and scary threat to their livelihoods.

Redundancy can be one of the most traumatic life events you will ever experience and this ‘money trauma’ triggers a very real emotional response. Unfortunately many people’s first reaction can often be to panic and start making big money decisions. In most cases the best advice is to wait before making any significant financial decisions, especially if you have received a pay out. Think first and spend later!

It is first and foremost important to avoid denial about your money position.
If you have been left not knowing where your next loan repayment is coming from, don’t stick your head in the sand.  Talk to your bank or lender and explain the circumstances.  A bank would much rather work with you to preserve your credit rating than let you default on your loans.

Be really careful about using your payout to reduce debt such as a home loan. Usually I would encourage people to pay down their debts but this is not the time – wait until you have a new job to even think about this.

Your superannuation fund will often have important life and sickness insurance included in it.  Check to make sure the premiums will still be paid even though you are no longer working.  Some companies will allow you to transfer your work insurance into a personal policy, but only if you do this within a few weeks of stopping working.

BUCKET LIST…BUT WHAT ABOUT A BUCKET PLAN?

Making your money last longer than you do

A wag once quipped that the best financial plan is one where you die with your last $5 still in your pocket. Well, if you are facing retirement it’s better to try and not cut it that close! The majority of us have heard of a Bucket List but are we forgetting that a plan is needed to convert this important list into reality?

Sorry to shatter any dreams of expensive retirement trips around the world, but deciding on how to invest your savings when you are going to stop earning a full-time income is a challenge. Ultimately, you need to make sure your money doesn’t run out before you do.

Certainty is something we would all like in our financial fortunes – if you get it wrong or if the markets are unkind, time is not on your side as a retiree to rebuild your wealth. It’s one thing to make a bad investment decision in your 20s, quite another to lose money in your 60s!

On the other hand, you do need to protect what you have earned against inflation and the fact that we are living longer than ever. When the average life expectancy for someone in their 60s is more than 20 years away, putting your savings in a bank is rarely the right option.

This raises all-important questions, like how in the hell do you ensure you make your money last longer than you do and how do we make sure that when you need some money you have a smart place in which to draw it from?

Enter the Bucket Plan and more specifically the three magic buckets.