Four weeks into the New Year, many of us are on the journey to try and stick to our new year’s resolutions of exercise more, lose weight, drink less, quit smoking but with the Xmas credit card bills due soon and with the cost of living crises and further price increases expected this year, it’s understandable some of the typical New Year’s resolutions of years gone by may have dropped down the priority list and replaced with ‘reduce my cost-of-living’ for many Aussies.
Now more than ever, taking a financial health check may be the most important resolution you make and stick to in 2023. It is important to seek the advice of an accountant or financial planner if you have property interests or hold investment products. CommBank says nine out of 10 Australians have set a financial goal for 2023, and this year “reducing living costs” tops the list of money resolutions.
However, Will Mailer, chief behavioural scientist at CommBank, says, “We know a huge number of resolutions won’t make it to February, as many of us fall back into old habits in the first weeks of the year.”
We have put together a list of factors that you should consider, when planning your 2023 to improve your finances.
Taking stock with a financial health check
A financial health check operates in the same way as a regular health check that you would book with your local doctor for your physical (or mental) health. For instance, there are a few different reasons why you might want to check in with your local doctor:
- There might be a problem you know about that you’re working to overcome
- Something might not feel right, and you’d like to get to the bottom of it
- There might be a few niggly things that aren’t major, but you don’t want to blow out into bigger problems
- And sometimes you need a routine check-up even if everything feels normal
The same applies for a financial health check, there could be many reasons you book one, such as:
- You might have consistent issues with cash flow in your business or personal life that is causing strain and stress.
- You might have a lot of debt, and you want to know if you can manage it more efficiently.
- You might want to know if you’re on track for retirement, collecting the right amount of super to maintain the lifestyle you see for yourself after you finish working.
- You might be interested to know how increasing your prices would impact your revenue. Or how investing might impact your savings.
- It might have been some time since you last looked at your finances holistically, and you’d like a professional pair of eyes looking at how everything is structured.
But the end goal is to ultimately improve your quality of life.
What are the benefits of a Financial Health Check?
You will be able to map out a clear strategy and actionable steps towards those goals.
- Gives you an accountability partner. You’re far more likely to succeed with your goals or stick to a new habit if you know we will be following up on your progress
- Accurately tracking your financial position makes it easier when/if you apply for a loan, and you will be a more attractive prospect to lenders
- It’s a preventative tool as well. Can highlight problems you didn’t know existed or show where problems could arise in the future if nothing is changed
Once problem areas are identified and addressed, the money saved can then be used to build wealth and secure cash for the future.
Insurances
Firstly, review whether you have any insurance policies that may help you through the situation. This is probably a more obvious starting point if you’ve been impacted by a natural disaster such as flood or fire, however if your current financial situation is due to job loss or perhaps injury then there may be income or salary continuance insurances that you have overlooked. It’s not uncommon for people to be unaware that they have insurance cover as part of their superannuation. So, check that out as a starting point.
Have a health insurance policy, but worried about the cost of your premiums? Most of the country’s biggest funds increased their prices in November 2022, while Medibank/ahm increased its premiums on January 16. If yours recently went up (or is about to), don’t simply accept the higher price! Consider comparing your current policy against a range of others to see if you can save money or find better value.
Financial position – Assets v Liabilities
Put together your statement of financial position. This is simply a list of all the things you own and all the money you owe to others. It may be helpful to write down all the things you own in a list on the left-hand side of the page assigning it an approximate value, then a list of all the money you owe on the right-hand side of the page, again assigning it an approximate value. Looking at your assets, include things like:
- your home and/or investment property
- your car, caravan/trailer, boat/jetski
- your personal effects such as clothing, furniture, technology, artwork, jewellery
- savings accounts and investments such as your superannuation or shares
- sporting equipment.
On the liabilities side of the ledger include the following:
- Home loan or investment property loans
- Personal loans or car loans/leases
- Credit cards
- Buy now pay later facilities.
As you go through your list of the things you own, take note of how much you have in savings that may be able to help you through this tight spot. Perhaps you have an emergency fund ready to help you through this time.
Raising cash
As you are going through your list of the things you own you might identify some things that you haven’t used in some time or no longer need. You know, that set of golf clubs that you haven’t used in the last few years. Or perhaps, the old bike that you never got rid of when you upgraded.
All of these things can be turned into cash by selling them. Cash that could help you get through this set-back. All of these things can be replaced in future once you’re back on your feet again.
Depending on your situation you may even need to consider downgrading your car or home, particularly if they have debt with high interest rates attached to them as well. If you’re currently a 2-car family, consider whether it’s possible to operate with just one car.
The savings by not having to pay 2 sets of registration and car insurance, and decreased running costs are considerable. Not to mention the interest costs and repayments if you have finance on the car too. If you’re single you may even be able to use public transport rather than retaining the cost of running and maintaining a car, or perhaps you could even dust off the old push bike and use that instead. The more short-term sacrifices you’re prepared to make the better chance you give yourself of recovering sooner.
It’s not a welcome job, or an easy one, but bringing in some extra cash by selling unused or unwanted assets could be the difference between you getting back on top of things sooner rather than later.
Current cash flow
Once you’ve got a clearer understanding of your financial position, it’s then time to look at what money you have coming in and how that is currently being spent, that is, your cash flow. You may be able to identify ways to maximise your income and minimise your costs. It helps to start by looking at the current situation holistically and then drill down into changes you’d like to make.
Start with the money you have coming in. This could include your wages, your partner’s wages, any government benefits you receive or may now be eligible for, investment income such as dividends on shares or rent from an investment property. As we said earlier, there may also be an insurance policy that can add to your cash flow too. As with your assets and debts write them all down with the relevant amounts.
Then move onto all the things you spend your money on. It helps to be systematic and thorough here. Start with all your commitments to other people/businesses. For example:
- Loan repayments – home loan, personal loan, investment loan etc.
- Credit card repayments.
- Phone plans where you are paying off your phone as well as purchasing your data.
- Buy now pay later facilities.
Then move onto the things you need to pay. Things such as:
- Housing – rent, rates, utilities, etc.
- Food
- Transport – fuel, parking, tolls, fares etc.
- Health – exercise, medications, doctors’ fees etc.
- Basic personal services – necessary clothing, education, personal grooming etc.
And lastly, think about the things you choose to pay to maintain the lifestyle you want. Things such as:
- Entertainment – music, sport, movies, eating out etc.
- Enhanced personal services – cleaner, gardener, more expensive clothing etc.
Then make the comparison between how much you have coming in and how much you are spending. If you have more coming in than you are currently spending, then you may not need to make many changes at all.
However, if your current spending is more than your current income then you’ll want to look at ways you may be able to reduce your spending.
Revisit your home loans
Australians are more likely to research new phone plan than review their mortgages. A home loan is a vastly bigger beast than a mobile phone plan. Yet research by non-bank lender Pepper, shows 70% of Australians devote time to comparing phone plans, while just six out of ten people shop around for a home loan.
Mario Rehayem, Chief Executive Officer, Pepper Money, says the finance market “can feel confusing to navigate” but adds that taking the time to check out home loans “can make a much bigger real-life difference to the household budget than your choice of phone plan.” Partnering with a mortgage broker can make it quicker and easier to find a home loan, but Pepper’s survey found three out of five people believe engaging a mortgage broker is expensive.
In fact, consumers don’t usually pay for a mortgage broker’s home loan service. Most brokers are paid via commissions from lenders.
Invest in a Strategic Health Check
Many Australians need assistance with undertaking a financial health check and you should consider taking the time to discuss your financial position with your accountant. Typically a strategic health check will involve the following:
- Prior to meeting with your accountant, you will be asked some questions ahead of time, in the form of a checklist. You will be advised what documentation you need to prepare depending on whether your financial review is for a business our yourself
- A 60 – 90 minute initial meeting to discuss your finances, and assess where everything is at
- Be prepared to be honest and as open as possible. Some people find it difficult to talk about their finances, particularly if things haven’t been going well. Keep in mind that the more you share, the more we can direct the right help your way. Talk about your concerns, your goals and areas that you believe you can improve on
At the end of this initial consultation your accountant should provide you with a written report which outlines ways to improve your financial position, potentially reduce you tax burden and demonstrate how you can protect your assets from creditors. The cost of these health checks are also tax deductible. So why not do it!!
How can we help?
If you have any questions or would like further information or you are seeking property tax advice, please feel free to contact our office via email –info@investplusaccounting.com.au or phone 02 9299 7000 to either speak with someone or arrange a time for a meeting so we can discuss your requirements in more detail.
You can arrange a free 15 minute no obligation chat to discuss your options. Please arrange an appointment with our office by clicking here
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The material on this page and on this website has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained on this page and on this website is General Advice and does not take into account any person’s particular investment objectives, financial situation and particular needs.
Before making an investment decision based on this advice you should consider, with or without the assistance of a securities adviser, whether it is appropriate to your particular investment needs, objectives and financial circumstances. In addition, the examples provided on this page and on this website are for illustrative purposes only.
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