Study after study shows that financial wellbeing and mental and physical health go hand in hand. Financial woes can result in sleep disruptions, mental health problems such as anxiety and depression, and even cause physical pain according to recent research from the Association for Physiological Science. So, as June 30 looms and a new financial year beckons, why not spend the time getting yourself financially fit?
Head Consultant and Business Coach for boutique accounting firm Iron Advisory, Stephanie Mellick, says the new financial year is the perfect time to revaluate your financial goals – and yet so many people tend to avoid it.
‘Talking about money can make you feel vulnerable and naked, so it’s often easier to hide from the reality of your finances rather than facing it.’
Licenced Financial Advisor and author of On Your Own Two Feet – Steady Steps to Women’s Financial Independence, Helen Baker, agrees.
‘While I don’t particularly like personal health checks, I have them because I know that they’re important for picking up early signs of what could be health nasties. The same can be said for annual financial health checks,’ she says, noting that true financial freedom comes down to the careful handling of five financial spheres: an emergency fund, a spending and investment plan, insurance, superannuation, and estate planning.
‘Just as I get my skin checked by a trained doctor for early signs of skin cancer, financial health needs professional once-overs, annually at least. I’ve rarely met a person who, without professional guidance, has had all five spheres working optimally.’
But for those of us who don’t have a financial advisor on speed-dial, what can you do today to get you on track for the 2019/2020 new financial year?
Three steps to creating positive financial goals:
1. Work out your financial values: Identifying your financial values will help you set goals you’ll actually keep. ‘Work out what’s important to you and don’t beat yourself up if your friends are focused on buying a house while you are saving for a holiday,’ says Mellick. ‘It’s a difference of values, not a question of right or wrong. If splurging on shoes each month brings you joy, then do it – just keep in mind that something else has to give.’
2. Work out where your money is going: List your monthly expenses, from rent or mortgage costs, gym fees, and hairdressing spend, to groceries, phone bills and your Netflix subscription. Write it all down and compare it to your monthly income. ‘Then go through each expense with a fine tooth comb to see where costs can be cut or where items need to be reviewed,’ says Mellick. ‘For example, is your health insurance covering you for things you don’t need? Are you paying too much with your utilities and need to look for a better deal with a different supplier?’
3. Set a budget and triple check it: Together, your living expenses and the money you enjoy spending your income on form your household budget. ‘Although many people don’t like to track their actual spending against a budget, it’s worth doing for a couple of months,’ says Mellick. ‘That way, you can make sure your hard-earned cash is going where it should go.’ Apps such as Pocketbook can be linked to your bank accounts and bank cards to make tracking your spend painless.
What kind of goals should you set?
Think about creating short-, medium- and long-term goals for the next financial year. Short- term goals might be paying off non-deductible debt such as credit cards, while a medium- term goal might be saving enough cash to cover three to six months worth of living expenses.
‘Part of any good saving plan includes building up an emergency fund. This is an amount of money set aside in a separate account that lets you sleep at night knowing that if something dire happens – you lose your job, have a medical emergency or need to get out of a bad relationship fast – you can without drawing on credit cards or using your mortgage offset account like an ATM,’ says Baker.
‘How much do you need to feel safe?’
Long-term goals would be your big-ticket purchases, such as a house deposit, paying your mortgage off early, or building enough capital for a business venture. Baker’s top tip? Don’t forget your super.
‘Superannuation is one of the most tax-effective ways of building for your future. For many of us, it’s out of sight and out of mind. But if advertising has roused you to think about consolidating multiple small super accounts into one, take a moment to consider some potential implications,’ says Baker.
‘You may be hit by exit fees. Worse, you may lose in-built personal insurance. If your health history has changed, for example, you may not be able to get the cover that you need, let alone increase it, and you can’t claim on an account once it’s closed.
‘Almost half of Australian adults are also without a valid written Will, so this is a relatively quick tick item on the financial health check. Anyone over the age of 18 who has worked even a little is likely to have some superannuation, and insurance within that. Think: who would you want to get it?’
How to kick your financial goals
Mellick likens the journey to financial wellness to your journey to health – it comes down to mindset.
‘If you have underlying beliefs that are contrary to your conscious goals, you’ll always find resistance,’ she says.
‘Set a plan, and recognise and work through your blocks – be it money patterns or attitudes you accidentally adopted from your parents, or the fact you are sometimes on autopilot with your money and need to become more self-aware.
‘And don’t try to be perfect overnight – baby steps all add up!’
Include savings in your new household budget and send it straight to a separate high-interest savings account.
‘I always suggest a percentage of your wage, rather than a dollar amount,’ says Mellick. ‘And make sure it’s sustainable. Compound interest can add up over time if you just leave the money in the account, rather than withdrawing every couple of months because you come up short!
‘Try two per cent of your income and see how you go for a few months. If you think you can save more, move to three per cent and so on…’
If possible, put 10 per cent of your income away for holidays and treats, suggests Mellick. ‘This can make the long hours spent at work more bearable,’ she adds.
But it’s not just about saving money – how about earning more? ‘What skills can you improve or grow that will earn you more money? You could learn to trade shares, improve your marketing or writing skills, or simply spend time growing your professional network. Plus, there are plenty of low cost study options out there,’ says Mellick.
Please note: this is general advice only and you should seek advice specific to your circumstances.