With living costs and interest rates on the rise, the future might be looking a little tough, but it’s not too late to kick start a very happy new financial year.
RSM Financial Services Australia senior financial adviser Chris Oates says while it may be hard to save money right now, there are some steps to help keep your head above water and even increase your bank balance.
“The most important thing people can do if they want to save money, and avoid spending more than they can afford, is to create a household budget,” Mr Oates said.
Families may be struggling with paying off their mortgage due to a rise in interest rates and, coupled with the increased cost of electricity, fuel and food, they may be finding it hard to accumulate any savings.
But, Mr Oates says, with a simple budget, families can see exactly how and where they’re spending their money and allow them to cut back on certain expenses when they need to tighten their belts.
“If people can put aside a certain amount for eating out or takeaway food, for example, they can cut that back if they are struggling to pay their bills,” he said.
For anyone trying to save for a new car, holiday or home deposit, Mr Oates has a simple tip to make saving easier.
“The best thing people can do is move their money into a savings account as soon as they get paid. Don’t leave it until the end of the week or the end of the month, because it will inevitably get spent,” he said.
“An even better option is to ask their employer to deposit a certain amount from each pay into a separate savings account – if they don’t even see it, hopefully, they won’t spend it.”
Mr Oates says labelling ‘living’, ‘holiday’ or ‘new car’ accounts and watching the balance grow can also be an incentive to save for those special items.
“I would advise people to set a target if they’re saving for something in particular – if they know what they’re saving for, it can make it a lot easier,” he added.
People with savings sitting in the bank, can use those funds to help pay off their mortgage if they have one.
“One of the biggest things I find is when people are trying to pay off a mortgage, if they have a living account and a separate offset savings account, they can significantly reduce the amount of interest they’re paying on a variable interest rate home loan,” he said.
“For example, if they have $10,000 sitting in an offset savings account and owe $100,000 on their mortgage, they could only be paying interest on $90,000.
“With interest rates going up, people will save more by reducing the amount of interest they’re paying off their loan, rather than building up their savings.”
He also suggests people talk to their bank about reducing their interest rate or seek advice from a mortgage broker to see if it’s worth refinancing the home loan with a different bank.
Families and young people just starting out in the workforce, or working part-time while attending school or university should beware of the risks associated with credit cards and popular after-pay spending.
“People really need to be careful with credit card limits and ensure they can afford to pay them off on time because the interest is outrageous,” Mr Oates said.
“The same goes for after pays – people can get themselves in all sorts of trouble by spending more than they can afford.”
A great way to boost the bank balance is to receive a good tax cheque. People should be looking 12 months down the track and putting systems in place now to maximise their 2022/23 tax return.
RSM Canberra manager Isaac Youngberry says kicking off the new financial year with good record-keeping habits will pay off.
Keeping track of all spending, whether that’s keeping receipts in a shoebox, or using one of the latest record-keeping apps, will help come tax time.
“It’s also a good idea for people to start an Excel spreadsheet to keep a record of the date and the amount they’ve spent,” Mr Youngberry said.
“Being organised will reduce the loss of receipts and people will also save money on tax agent fees.”
Mr Youngberry says there are several super-easy apps that allow employees to take photos or scan their receipts, which are then filed until they’re needed at tax time.
Another simple tip for people who travel a lot for work is to start a log book now.
“There are a number of GPS apps that make keeping a logbook for 12 weeks easy,” Mr Youngberry said.
“The logbook record is good for five years, and if they have an expensive car or just purchased a new car, it can help maximise their tax return. The 12 weeks of pain is definitely worth the effort.”
Keeping a diary will help ensure those working from home can claim internet, home phone and mobile phone use, as well as any office equipment purchased.
Need advice? The team at RSM Australia is a world-leading provider of taxation and financial advisory services for individuals and businesses.