Increasing your income is not the only way to improve your financial situation.
Ever thought winning the lottery would fix all of your money worries?
Perhaps, but there’s plenty of evidence to show that a sudden windfall can sometimes create more problems than it solves. The rule of thumb is, if you don’t have to work for it, you don’t value it.
The reality is that almost 17% of the Australian population lives in households that earn a yearly taxable income of $66,667 or less. More than 70% of households have some level of debt, with 26% of them incurring a total debt three or more times their annualised disposable income. And one-third of Australians over the age of 60 are living below the poverty line.
So how can low-income households help themselves without increasing their income? By following the two key principles of managing any budget: save more, spend better.
Fatten the piggy bank
As most of our advisers will tell you, true financial stability is not so much about how much disposable income you have but about how much you have saved. This increases your ability to pay unexpected bills.
Recent studies have shown that Australians have been saving much more since the global financial crisis, but many are still far from the recommended three months’ worth of your salary stashed away for an emergency fund.
Plan ahead and budget
The first rule of smarter savings? Planning.
Whether you’re saving for a specific item or just looking to manage your finances, it’s worth sitting down and calculating how much you have, how much you need, and how much you want. This can be done by visualising your end goal, setting a clear time frame and defining achievable milestones.
It may be useful, for instance, to split your money into three pots: a pay pot to pay current and future bills, a save pot that puts a little towards your goals, and another for leftover money that’s safe to spend.
Managing these is much easier if transfers and deposits are automated, that way you’ll have less chance of spending on a whim.
It’s never too late to start saving, especially if you use a savings plan calculator to help you get started.
Keep an eye on expenses
Once your savings are on track, a budget calculator can help you monitor expenses. This is a tool best used alongside the following habits.
Check your bank statements
Check your income is right. This may include your salary, Centrelink payments, child support payments, and if any is missing or incorrect, challenge it with your boss or contact Centrelink. Also look at what you’ve spent by going over the ‘debits’ column of the statement and compare these debits with your receipts to make sure they’re right.
Reduce your spending
Stay on top of your budget by cutting costs wherever possible. Turn off lights, eat at home and do your own household repairs if you can.
Consolidate your debt
Prioritise debt payments to get rid of the highest interest rates faster. You can also take advantage of balance transfer offers.
Compare before you buy
An informed shopper is a smart shopper. Insurance, health care and even utility providers offer special tariffs to accommodate all budgets. You may also be eligible for low-interest loans or special bank accounts with little to no extra fees.
Maximise your entitlements
Find out if you qualify for any government financial support schemes. From housing and health care to utilities and tax deductions, there are many types of government support for low-income households.
You can count on us
Here at JH Financial Partners we can help you stay on top of your bills, achieve your savings goals, and spend your money wisely. Contact us on 9021 2089.
Source: AMP, originally published on 29/09/16 amp.com.au/insights
Important note: © AMP Life Limited. This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, AMP does not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, AMP does not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.