At this time of the year, we all turn our attention towards the New Year and how we can do things a little better. Depending on the survey you read, between 75-85% of Australians make New Year’s resolutions every year, with usually a quarter of us taking a pledge to get out of debt. But like commitments to get fit or travel more, most of us struggle to achieve our annual financial resolutions.
So, if your financial goals for 2021 bombed, you are not alone. The last 12 months have been challenging with long stretches of lockdowns across large parts of Australia, but with some planning and guidance, 2022 can be the year you take back control of your budget and enjoy a prosperous New Year.
- Improve my credit score
A credit score is a mathematical score that represents how trustworthy your reputation is as a borrower. Essentially, your credit score sums up the information on your credit report into one number between 0 – 1,200.
In Australia, Equifax, Experian and Illion, are the leading credit agencies to provide you with a credit score. Each uses different credit score ranges, and a low credit score and bad credit report can cause you problems when the time arrives to apply for affordable finance options. Even a small default of $300 can stop you from getting the best interest rates for a home loan.
Suppose you do have a blemish on your account. In that case, there are several ways you could resolve to fix the black spot, including not missing payments, catching up on overdue amounts, paying off revolving count balances such as a credit card debt and limiting the number of new accounts you open.
- Create a personal budget
Having a budget shows you where your money is going and can potentially help you trim some unnecessary spending in 2022. With a budget, you can also put aside some cash for bills and expenses and set up a plan to reach your financial goals.
To make budgeting easier, consider setting up separate bank accounts such as a transaction account for bills and expenses. You may also have a transaction account for spending, as well as a higher interest account for maximising the returns from your savings.
You can automate your budget in 2022 by setting up a regular transfer to your savings or establish direct debits to pay bills when they are due. If you’re new to budgeting, try the Federal Government’s Money Smart Budget Planner to work out where your money is going.
- Save more – ways to trim spending
If you have a savings goal, your budget can help you to achieve it. Once you know how much money you need for ‘wants’, you can calculate the amount of money you can save. Moreover, these savings can provide you with a financial safety net should the unexpected occur in 2022 such as an injury or job loss.
- Managing credit card debt
When it comes to managing credit card debt, pay it off on time and in full each month, and you’ll be on course to a successful 2022.
To pay the card on time, check the monthly statement for the due date and make the payments before that date. By doing this, you’ll avoid paying additional interest or late fees and it will help keep your credit score healthy.
An easy way to pay off the card is by setting up a monthly direct debit or automatic transfer from your bank account. Set the payment for the day after your pay goes in, so you have enough money to cover it. You can also add a reminder to your calendar to pay the card.
If you can’t pay off the total amount monthly, pay as much as you can. By making higher repayments, you will pay off the debt faster and save money.
- Check the interest rate on your mortgage and consider a mortgage ReFi if you don’t have a reasonable interest rate
It’s amazing how many Australians don’t know the interest rate on their mortgage. So, make a New Year’s resolution to check the interest rate, and if it doesn’t start with a 2, you could be paying too much.
In this situation, it might be time to talk to us about refinancing your mortgage. Also called a “ReFi”, refinancing involves paying out your current mortgage with a new one. It can trim the loan term and reduce the interest rate, so you can afford to make extra mortgage repayments and own your home sooner.