5 Steps To Financial Confidence In Uncertain Times
No one could have predicted how uncertain 2020 has been, and when it comes to your finances, there’s nothing worse than feeling unsure about the future. Life will always have ups and downs – from share market shifts to changes in your personal life. What can you do to ensure your finances will survive the bumps in the road? Here are the five steps we swear by:
1. Understand your expenses (and see whether you can reduce them)
Knowing what it costs you to live is essential in having financial confidence. Create a comprehensive list including groceries, household expenses, mortgage repayments or rent, gym memberships – everything you spend each month. Once you know your total monthly figure, see if there are any opportunities to reduce it by cancelling subscriptions, reducing extra payments or eliminating inefficient expenses.
2. Calculate your ‘guaranteed’ income
Next, you need to understand how much income you can rely on over the next 2-3 months, whether that’s from employment, a pension or investments. For some, their guaranteed income won’t change month-to-month but for others it may be variable based on their type of employment or investments – so work out how much income you are guaranteed in the worst-case scenario.
3. See what entitlements you’re eligible for and assess your cash reserves
Check whether you’re entitled to any current government stimulus packages, if you have annual or long service leave at work and if there is any redraw on your mortgage. Add these amounts to any cash savings you have – after your guaranteed income, this is your next ‘line of defence’ should you need to use it.
4. Work out how long these will last you
Once you know your expenses (step one) and you understand both your guaranteed income and ‘backup’ options (steps two and three) you can work out how long these will cover your monthly expenses should uncertain times hit. You might have a shortfall of $500 in cash a week but you have enough leave to cover you for a year, so it’s worth calculating how long your various options will last should your guaranteed income be compromised.
5. What other opportunities can you take advantage of?
Now you should have a good idea of where your finances are at. If you have a significant amount of cash reserves (for example, enough to last 5 years) then you are in a strong position and it’s worth considering other opportunities. This could include pre-paying a regular expense to receive a discount, reducing debt, contributing more to super or investing. The options available to each person will be different, but it’s something we recommend most people explore.