21 Money Tips For 2021
2020 has been a year to remember (or maybe forget). With 2020 coming to a close, our attention now turns to 2021.
With the New Year comes New Year resolutions with many of these revolving around money.
Here we have listed 21 money tips for you to help master your money in 2021.
1. Plan your spending
Budget is a bit of a dirty word and doesn’t generate much excitement. Much like a strict diet.
However, a spending plan is different. A spending plan is a plan on how you will spend your money. This means allocating parts of your income to different areas and this includes the fun stuff like eating out, clothes and gifts.
By having set allocations, you can spend guilt free knowing that you have the money allocated where it needs to be.
2. Surplus – The Key to Long Term Wealth
After creating your spending plan, you will see that you will either have enough income to cover all your expenses and have some left over (surplus) or you won’t and you will be losing money (deficit).
If you have a spending plan deficit, this means you are living above your means and are accumulating debt. Over the long term, this type of debt can be a huge drag on your finances.
Having a surplus in your spending plan gives you options. These options are the key to building wealth as it is this surplus that you can put towards things such as a home, investment property and/or share portfolio.
3. Put yourself first
This also works with your spending plan. Plan to pay yourself first and then allocate the rest of your income. Most people do this the other way around whereby they spend first and pay themselves whatever is left over (this can often be nothing).
If you pay yourself first, you will begin to adjust your other spending in line with the reduced amount available while knowing that you are putting away money for your future.
4. Be aware of trade offs
You only have a certain level of income which can be allocated around all of your expenses.
Unfortunately, this means that in order to buy one thing, you might have to give up another.
For example, say you want to buy a new pair of shoes but you also want to buy a new bike but only have enough spending money for one. You need to make the decision of which one will be better for you long term and bring you the most joy.
We make these trade off decisions all the time without being aware of them. By being aware of the trade-offs, you can make better decisions with your money.
5. Good Debt versus Bad Debt
Learning the difference between good and bad debt can play a massive role in building wealth.
Understanding that not all debt is bad is the first step.
Debt that helps you make money such as debt on an investment property is considered good debt as you are borrowing someone else’s money and using it to buy something which will hopefully grow in value and earn you an income.
Avoiding bad debt is just as important. Bad debt includes things such as credit cards and personal loans where you have used someone else’s money to buy something which doesn’t earn you an income or won’t grow in value. In effect, you are likely paying a considerable amount of interest on things that provide very little value.
6. Be SMART – Set Money Goals
It is proven that actually setting goals and writing them down increases your chances of achieving that goal.
When setting goals, make sure they are SMART! (Specific, Measurable, Achievable, Realistic and Timely).
These types of goals work great when trying to save up for something such as a home deposit, an overseas holiday or a wedding. They also work great for paying down credit card debt and car loans.
7. Invest in yourself
Your greatest asset is you.
By investing in your education and health, you will have the ability to earn a greater income as you will be more valuable to employers.
This increase in income can then allow you greater opportunities in the future.
Netflix, Stan, Spotify, Disney+, your gym membership and the home utilities are just some of the things which can now be set up to be paid automatically from your bank account.
While this makes paying your bills easy, it can also mean you are paying for things you no longer use. It can also lead you to being out of touch with how much everything is costing.
Make sure to check what is coming out of your account each month and if you are not using something, cancel the direct debit. The money is better in your pocket than someone else’s.
9. Compare, compare, compare
While you check your direct debits, why not also compare electricity and gas providers to make sure you are getting the best deal.
There is a heap of comparison sites now such as Compare the Market and iSelect, which can help you sort through all the different providers.
And while you are at it, why not also compare your mobile and internet plan.
More often than not, if you go to your current provider and tell them you have found a better deal, they will try and match it. This is because it is much easier to keep a current customer than find a new one.
10. Are you covered?
It is important that your insurances are regularly reviewed to ensure they are still relevant to your needs. You may be over or underinsured depending on your circumstances.
This goes for your home, contents, car, life, health, income protection and any other insurance cover you may have.
11. Your money, your super
Take the time to actually look at your superannuation statement and see what is happening. Have you made or lost money this year? What is considered good performance this year? How is your super invested? Do you have insurance in your fund?
Taking ownership of your superannuation is one of the smartest things you can do when it comes to your personal finances.
If you have some surplus cash and are not sure what to do with it, it may be time to consider investing.
Bank deposits are earning next to nothing and when you take into account inflation, it is likely you are actually losing money on this cash.
If you are unsure how to do this, check out Tip 21.
13. Check your home loan rate
Home loan rates are at record lows and the Reserve Bank is not looking to raise rates anytime soon.
The banks do not always pass on these rate cuts to their customers. It is up to you to make sure you are getting the best possible deal.
Variable home loan rates are now sitting between 2-3 per cent so if your rate is greater than this, you may be paying too much.
While it can be painful to refinance, the effort could literally save you thousands.
If you need help with this, have a look at Tip 18.
14. Should you fix your rate?
While checking your home loan rate, you may want to consider fixing some of this and locking in a great rate.
Some fixed rates are now below 2%!
Fixed home loans do come with certain conditions however so ensure you understand all the terms around this before locking it in.
Tip 18 can also help with this.
15. Are you using an Offset Account?
An offset account works like a regular saving account but is linked to your home loan.
Any money in an offset account reduces the amount of interest paid on your loan. A no-brainer if you have a home loan and cash sitting in the bank.
16. Thinking of an Investment Property?
Research is key. And not just the property itself but everything else that goes with it.
- How do you purchase it – in your own name? a company? trust?
- How do you structure your debt?
- How will it impact my cash flow?
- Does an investment property actually suit your lifestyle?
Making sure you understand all this before committing to a property is crucial. Once the property is bought; it may be too late.
Avoid making a very expensive mistake and take the time before you make the decision.
17. What about a Buyer’s Agent?
A Buyer’s Agent is a professional who guides a buyer through the process of purchasing a home.
A Buyer’s Agent has a legal obligation to protect the interests of the buyer and work to ensure they’re getting the best deal possible.
Most importantly, Buyer’s Agents work with property and other agents every day. If you are going to spend hundreds of thousands of dollars, you need to make sure you have someone looking out for you and choosing the best property for your circumstances.
Buying a property is not as simple as looking at realestate.com.au and picking something that looks like a good investment.
18. Should you use a Mortgage Broker?
Anyone can check the websites of different banks, compare rates and apply for a loan. So, using a mortgage broker is not a necessity.
However, have you considered;
- How best to structure your loan?
- Which lender allows for new home construction?
- What are the risks of going with a smaller lender?
- Should you stick with your current bank for the ease of keeping all of your accounts in one place?
A good mortgage broker will help with all of these things and will ensure you get the best loan possible for your circumstances.
If you are going to spend hundreds of thousands on a property you should make sure your loans are set up in the best possible way.
19. Shares or Property?
Firstly, both are great vehicles for building wealth.
Neither one is better than the other. Each provide their own advantages and disadvantages.
Shares allow you to start off with a smaller initial investment and you can easily add money to your portfolio on a weekly, monthly or annual basis with minimal fuss. You can also create a very diverse portfolio very easily.
Property on the other hand requires a larger initial outlay and likely requires borrowed money which increases your risk. It is also much harder to create diversity as you are likely only able to buy the one property at a time and if the chosen property doesn’t perform well then, your whole portfolio doesn’t perform.
However, the fact that you can borrow money to buy property is one of its great benefits. This allows you to leverage and have more money working for you. By having more money working for you, you can accelerate your wealth building.
The choice often then comes down to what you want to achieve through investing.
Better yet, if you can do both, you can enjoy the benefits of both and have a nice diverse investment portfolio.
20. Educate yourself
The more you learn about money, the better you will be at managing it. It sounds simple, but lots of things about money are not taught at school and often we only learn about these things through our mistakes.
Educating yourself on all thing’s money can help you make less mistakes and help better manage your finances moving forward.
If you have made it this far in the article, you have already started the education process. Well done!
21. Speak to a Financial Planner
Money is too often put into the too hard basket and forgotten about or we say we will get to it later but never do.
Everyone now leads busy lives and this can lead to money never being a priority.
Why not outsource your money management to a Financial Planner?
While a Financial Planner costs money the value they provide is so much greater. They will ensure you get the best possible outcome from your circumstances and are likely to cost a whole lot less than the price of doing nothing.
Imagine how much better off you will be in 5-, 10-, 20- or 30-years’ time by having someone looking out for your money on your behalf.
Take the stress out of money and speak to a trusted financial planner.
Need more help or information?
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