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Give your finances a shake out

March 18, 2021  |  #Budgeting & Goals #Financial Planning

Like trees losing their leaves in autumn, why not take a leaf out of their book and choose this time of year to shed some of your own financial baggage.

In the style of Marie Kondo, the Japanese organising whizz who has inspired millions to clean out their cupboards, decluttering your finances can bring many benefits.

While you work through all your contracts, investments and commitments, you will no doubt discover many that no longer fit your lifestyle or are simply costing you in unnecessary fees.

And if that is the case, then it is likely that such commitments will not be sparking any joy. And joy is the key criteria Kondo uses to determine whether you hold on to something or let it go.

 

If you need help decluttering your finances, why not speak with one of our Advisers today.

 

So how does decluttering work with your finances and where do you start?

 

Where are you?

The first step is to assess where you are right now. That means working out your income and your expenses.

There are many ways to monitor your spending including online apps and the good old-fashioned pen-and-paper method.

Make sure you capture all your expenditure as some can be hidden these days with buy now pay later, credit card and online shopping purchases.

The next step is to organise your expenditure in order of necessity. the top of the list would be housing, then utilities, transport, food, health and education. After that, you move on to those discretionary items such as clothes, hairdressing and entertainment.

Work through the list determining what you can keep, what you can discard and what you can adapt to your changing needs. Remember, if it doesn’t spark joy then you should probably get rid of it.

Read our simple guide to budgeting for things to consider in your budget building and common budgeting mistakes to avoid.

Alternatively, you can jump straight into creating your own budget with our free budget planner.

 

Weed out excess accounts

Now you need to look at the methods you use when spending. Decluttering can include cancelling multiple credit cards and consolidating your purchases into one card. This has a twofold impact: firstly, you will be able to control your spending better; and secondly, it may well cut your costs by shedding multiple fees.

Another area where multiple accounts can take their toll is super. Consider consolidating your accounts into one. Not only can this make it easier to keep track of, but it will save money on duplicate fees and insurance. If you think you may have long forgotten super accounts, search for them on the Australian Tax Office’s lost super website. Since July 2019, super providers must transfer inactive accounts to the tax office.

Once you have reviewed your superannuation, the next step is to check that your investments match your risk profile and your retirement plans. If they aren’t aligned, then it’s likely they will not spark much joy in the future when you start drawing down your retirement savings.

If you have many years before retirement and can tolerate some risk, you may consider being reasonably aggressive in your investment choice as you will have sufficient time to ride investment cycles. You can gradually reduce risk in the years leading up to and following retirement.

If you are unsure about what investment style is most appropriate to you, you can take our what investor style am I? quiz
You can also learn more about consolidating your super here.

 

Sort through your insurances

Another area to check is insurance. While insurance, whether in or out of super, may not spark much joy, you will be over the moon should you ever need to make a claim and have the right cover in place.

When it comes to insurance, make sure your cover reflects your life stage. For instance, if you have recently bought a home or had a child, you may need to increase your life insurance cover to protect your family. Or if your mortgage is paid off and the kids have left home, you might decide to reduce your cover.

If you’re unsure about how much cover you might need, you can use an insurance calculator to help provide an estimate of your current life insurance, total and permanent disablement (TPD) and income protection needs.

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Prune your investments

If you also have investments outside your super, they too might benefit from some decluttering. As the end of the financial year approaches, now is a good time to look at your investments and rebalance your portfolio. In doing this, you may find that the mix of assets in your portfolio are no longer in line with your long-term financial goals and may need to be adjusted.

Wealth management is a simple way of ensuring your investment needs are being looked after and monitored on regular basis. We aim to maximise the probability of our clients meeting their goals, whilst ensuring we implement a strategy that is consistent with their tolerance towards risk.

Many people who have applied Marie Kondo’s decluttering rules to their possessions have reported the feeling of freedom and release it engenders. It may well be that applying the same logic to your finances gets you one step closer to financial freedom.

 

If you would like to review or make changes to your finances, why not call us to discuss.

What you need to know

This information is provided by Invest Blue Pty Ltd (ABN 91 100 874 744). The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regards to those matters and seek personal financial, tax and/or legal advice prior to acting on this information. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relations to products and services provided to you.