When it comes to financial planning, many Australians are just treading water - despite not really knowing how to swim. According data from the Australian Securities and Investments Commission (ASIC), just two-in-five Australians have a short-term financial plan (3-5 years) and barely a quarter have along-term plan (15-20).
If this sounds like you, it’s not all doom and gloom: there are a number of simple things you can do to help you better understand and get on top of your finances. Here are some tips.
Did you know that if you have $5000 owing on your credit card at 16% per annum and you only pay the minimum repayment due each month, it will take you 26 years to pay the whole amount? That’s longer than a mortgage!
At just 1.5% the cash rate is currently at the lowest it’s ever been, however that’s done little for credit card rates. In fact most cards are still in the high double digits. Used correctly, interest-free credit cards can give you access to cash without you having to pay a cent in interest. But the trick is to know how your interest-free days work.
55 days interest free doesn’t actually mean you have 55 days interest free on every purchase. The 55 days starts not when you charge the cost to your card, but at the beginning of your monthly billing period - which is generally 30 days and ends after the 25 days that remain once your statement is received. There are cards with up to 62 days interest free. Make sure your annual fee is reasonable and don’t put up with ridiculous reward fees.
If you need to borrow, avoid getting a short term loan or pay day loan, they’re faster to process but harder to afford. In most cases you’ll be up for an establishment fee of 20% of the loan amount and an account-keeping fee of 4%. Take time to do the math, you could borrow $1000 for a month and find a cash advance from your credit card which would be about $220 cheaper.
Increase your borrowing power
A $10,000 limit on your credit card reduces your home loan borrowing power by about $40,000.
If you’re interested in entering the housing market or need a loan, you can increase your borrowing power with a few quick and easy steps:
- Improve your credit rating
- Cancel credit cards or reduce your credit limit
- Reduce your other debts
Fast track your retirement
The Australian Seniors Pension for an individual is only $794.80 per fortnight but according to the Association of Superannuation Funds of Australia’s Retirement Standard, to have a ‘comfortable’ retirement, you need approximately $640,000 worth of savings – how are you tracking?
There are currently around 1.3 million lost super accounts in Australia and according to APRA the median yearly fees on a super account are about $500.
For example, if you have two lost super accounts, with approximately $5000 in each of them, over five years your account-keeping fees will cost around $5000. When it comes to super, every dollar counts so track down any lost super by visiting the mygov website.
If you want to be extra efficient with your super, the best way to supercharge your retirement is to make voluntary contributions via your employer.
Surprisingly only around 7% of us boost our super through salary sacrificing. Ask your employer to put some of your pre-tax salary into your super fund; you’ll be boosting your retirement nest egg the most effective way.
Contributions into your super fund from pre-tax salary are taxed at just 15%, which is a lot lower than what the average person pays on money taken home in the pay packet. However, there are limits to amount you can put in.
Have a look at Super Booster Day for other ways in which you can boost your super.
Of course, there are no quick and easy solutions to financial The trick is to keep it simple, set goals, ask for help and if it sounds too good to be true, it probably is.
You can find out how much you know about money and investing by taking this quiz on the Australian Securities and Investments Commission's website.
This post was written by Money Magazine's Effie Zahos to promote the movie Money Monster which is currently available on home media.