Financial housekeeping tips to start the year on the right foot
Written and accurate as at: Jan 13, 2025 Current Stats & Facts
Many people put off giving their finances an audit, often out of a lack of motivation, fear of what they’d uncover, or uncertainty about where to begin. But just like visiting the doctor to screen for any potential health issues, it pays to review your finances regularly so you can identify problems and get to work addressing them.
Regardless of your age, income or life goals, here are a few things to consider putting on your financial to-do list this year.
Tackle your debt head on
It’s common for people to look at their debts and feel unmotivated to do anything but pay off the bare minimum. But if you have the means, it might be worth taking a more aggressive approach.
One strategy you might find useful is the debt avalanche method. This involves paying the minimum required on each of your debts but prioritising the one with the highest interest rate. Once that’s been eliminated, you then focus on the debt with the next highest interest rate, and so on.
There’s also the debt snowball method, which involves paying off the smallest debts first, regardless of the interest rate. The goal here is to get in some early wins and let the momentum carry you as you work your way through to the larger debts.
Keep an eye on your net worth
Have you ever sat down and worked out the total value of everything you own? Calculating your net worth and (just as important) monitoring it over time can give you perhaps the clearest, simplest read on your finances, and the good news is it doesn’t take much work.
To start, you just need to take the total value of your assets and subtract any outstanding debts. Assets might include cash, shares and ETFs, super and property, while debts might include your home loan, credit card debt, and HECS-HELP debt.
Don’t be discouraged if your net worth is negative, as this is common early in life when student debts and mortgages feature prominently in the picture. What’s important is that your net worth trends upwards each year as your assets grow and your debts shrink.
Get serious about your cash flow
Your net worth provides a static overview of your finances at a given moment, but it’s also worth paying attention to all the moving parts that make it up. A big one is your cash flow, which is simply how much money is coming in each month versus how much is going out.
The first step to getting on top of your cash flow is tracking your expenses. If you haven’t done so before, you might be in for a few surprises as you learn just how much you’re spending on certain items (new clothes, takeout, streaming subscriptions, and makeup can add up quite quickly!).
Once the initial shock subsides, devise a plan to reduce how much you spend on non-essentials and get your cash flow looking healthier. Any money you’re able to save can then be invested or set aside in case of emergencies.
Beef up your emergency fund
That brings us to another essential item in your financial toolkit — your emergency fund. This is a liquid reserve you can tap into during rough patches, ideally containing enough money to cover three to six months’ worth of living expenses.
Think of it as a form of self-insurance. If you’re faced with an unexpected bill or you suddenly find yourself out of work, a well-stocked emergency fund can help you keep your head above water without having to sell assets or resort to debt.
Take charge of your super
Don’t let the ‘off-limits’ nature of super prevent you from taking an interest in it. Super is one of the most tax-effective savings vehicles available to Australians, and while you won’t be able to access it until you meet a condition of release, there’s plenty you can do to optimise it during your working years.
That might involve making extra contributions, reviewing how your portfolio is invested, and adjusting any built-in insurance you have to better align with your goals and circumstances. Moves like these are especially important the younger you are, as there’s more time ahead of you for any benefits to compound.
Start recording deductible expenses
Even if tax time isn’t around the corner, there’s no harm in being prepared. In fact, brushing up on all the things you’re allowed to claim and keeping records throughout the year can free up a lot of time once tax season does come around. Look for ways to track your deductible expenses that work for you, such as a spreadsheet or the myDeductions feature of the ATO app.
When trying to master your finances, it can be easy to feel discouraged if immediate results don’t follow. But as with any new undertaking the key is to stay patient and consistent until eventually those healthy behaviours become habitual. Along the way, make sure you celebrate those small wins, and if you’re uncertain about anything, think about speaking to a financial adviser.
