Global occurrences, a fluctuating marketplace, and a rising cost of living make financial uncertainty a very normal experience for many Australians. It is simple to be frustrated by articles about inflation and interest rates, but what you can control is what will make you most successful in dealing with these issues. Establishing a secure financial future is a simple process that doesn’t need expert market gamesmanship or a six-figure income.
But by being proactive now, you can build your own safety net that will cushion you when times are tough and launch you to higher levels of wealth when conditions are favourable. The first step towards building that safety net is to recognise exactly what your situation is at the moment.
Assess Your Current Financial Situation
You can never arrive at your destination if you do not know where you are coming from. Achieving financial stability involves understanding your finances. This is more than knowing where your money is. It involves understanding more than your bank account balance.
The best place to start is with a budget that is as comprehensive as possible. By tracking all income and expenses, you will likely be surprised at where the dollars are slipping through the cracks. For instance, you might have subscriptions that aren’t even being used, and small daily purchases that really do mount up over time. When you understand cash flow, it’s time to calculate your net worth. All you need to do is list what you own and subtract what you owe.
Create an Emergency Fund
Life is full of uncertainties. Car troubles, unexpected medical bills, or losing your job can spoil all your financial planning if you do not have a buffer in place. This is where an emergency fund steps in as a financial shock absorber, ensuring that you do not need to resort to credit cards with high interest rates during a crisis.
Financial advisers always propose allocating money to fund between three and six months’ cost of living. However, if it seems like a huge challenge, you can always start with smaller goals.
First, you should target one month’s cost of living. In order to accelerate your savings, you should always look for temporary options to increase your income or cut back your unnecessary expenses for a short period of time. All your windfalls, such as taxes and bonuses, should go directly into your high-interest savings account.
Pay Off High-Interest Debt
The number-one problem in building wealth is high-interest debt. Credit card debt and personal loans often carry interest rates that significantly exceed any investment rate of return that you could realise on most investments. Such debt is like pouring water into a bucket that has a hole in it.
To deal with such a situation, you require a plan. Two approaches are widely used: the avalanche and the snowball debt repayment plans. In the avalanche method, the debts are prioritised based on their current interest rate, starting from the highest interest rate and ending at the lowest. While paying off the highest-interest-rate debt, the person pays the bare minimum on other debts. Naturally, the person will save the most money on the interest part. The snowball plan concentrates on the smallest debt first.
Invest for the Long Term
Finally, after getting your high-interest debt in check and your emergency savings built up, you can start thinking about growing your wealth. Storing all your money in a typical bank account causes your purchasing power to be devalued over time due to inflation. By investing your money, you can make it work for you, and you can contact Findex in Toowoomba, as an example, for personalised advice.
Diversification is the “golden rule of investing.” If one area of the market is not doing so well, another area may be doing well. For some Australians, Index Funds, also known as Exchange-Traded Funds (ETFs), are an attractive means of gaining entry to the market. These funds track an existing market index. They provide instant diversification without the requirement to purchase individual stocks. It is also important to understand that “time in the market is more important than timing the market.”
Take Control of Your Tomorrow
Financial security is not something that is gained instantly, but through a number of deliberate decisions that are made in a certain way and over a certain amount of time. You can achieve a financial future that is resilient to any kind of financial storm by making sure that you have a clear idea of where you are now, making sure that you are protected from any kind of financial surprises, getting rid of any kind of toxic debt that you may have, and making sensible investment decisions. Simply take one step towards financial security today!
