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As the old year draws to a close, it’s time to start thinking about how to do things better in 2014. Financial resolutions should be near the top of the list, right alongside your diet and exercise regime.
Start by reflecting on the year just gone. Spend some time trying to understand what you did right and what you didn’t do right. Every financial transaction influences your overall financial situation, so it’s imperative to understand what works and what doesn’t.
Create a list of specific and realistic goals that you’d like to work towards in the New Year. Writing your goals down and setting specific timelines acts as a financial incentive that allows you to track your progess.
Develop a budget that will work for you based on your financial situation. Based on your earnings, it’s best to develop a budget that you feel will be relatively easy to keep. Try to reduce your spend on a steady and gradual basis, but allow for a few rewards every now and then. It takes a bit of time, but the best result from this is working out your surplus income after expenses (if any). From here, you can begin to work through the various options for how to utilise that income, as well as your other capital, in the most advantageous ways for the goals you have set.
Deal with debts
Discuss with your adviser the best way to consolidate any debts and if there is a better payment system to reduce the amount faster. The year 2014 is shaping up as the year in which the US may potentially begin to exit the so-called ‘Quantitative Easing’ Program and, as a result, there is a good chance that longer-term interest rates could begin to rise. Understand your interest rate risks and develop a plan to minimise the impact of any rate rise.
Make an appointment with your adviser to discuss whether it’s appropriate to consider alternative investment structures such as a family trust, self-managed super fund or maybe even an insurance bond or company structure. Such considerations are varied and complex and it’s important that you talk about these issues with a trusted and competent adviser. You should also consider properly reviewing any government entitlements due to your family and cash-flow position.
Understanding your investments
Keep your money as safe as possible. The key to this is making sure that you’re across the details of your various investments, so as to avoid any unexpected surprises. In this way, you can be confident that you’re receiving the best returns without compromising the amount of risk you’re prepared to take. By dealing with a reputable adviser, you should be able to partner in this process, taking the necessary time to properly evaluate different alternatives that will best meet your goals.
Evaluate your retirement plan. Ensure that all your superannuation is consolidated into one fund so you can keep track of its progress. Think about how much you’ll require for a comfortable retirement. Economists estimate that retirees will need about $1 million to retire comfortably – how are you positioned to achieve this goal? Maybe your new budget allows for some increase of your contributions in a tax-efficient way?
Review your personal insurance to ensure that you’d be able to meet your current expenses and commitements, as well as provide for your family if necessary, if you’re put in a serious situation.
Expect the unexpected
Prepare for surprises. Even if your plan is clear, it’s best to include a contingency in your budget. Unexpected bills or trips may pop up that may tempt you to dip into your savings. This year, the coalition government will hand down its first budget – and, based on the rhetoric, it’s safe to assume that we should be bracing ourselves for quite a few legislative changes. Market volatility is also an issue as investment market prices can move up or down.
Finally, always seek advice from your financial adviser on any tax or financial matters. If you’re unsure about something, it’s best to discuss these important matters with people who can offer practical advice.
Craig Wilford is a partner in the financial services division at accounting and consultancy group Nexia Australia.