A personal finance expert has listed five smart financial strategies everyone should be doing as interest rates and the cost of living continue to rise.
Melissa Browne, founder of My Financial Adulting Plan, encourages others to become financially literate to reach personal money goals by saving for an emergency fund, thinking long-term, diversifying investments and living below your means.
‘The problem is, we’re also in a time of falling financial literacy, which means we know we should be doing something, we’re just not sure what,’ Ms Browne said.
The Reserve Bank of Australia hiked up interest rates for five straight months this year in attempt to curve inflation.
Australian personal finance expert Melissa Browne (pictured) encourages others to become financially literate to reach personal money goals by saving for an emergency fund, thinking long-term, diversifying investment and living below your means
1. Create an emergency fund
As a general rule of thumb, it’s wise to have at least three months’ worth of your expenses stashed away in a separate bank account.
Ms Browne said when Covid hit emergency funds were ‘suddenly super sexy’ due to the uncertainty of the pandemic.
‘Having a pot of money in case of an emergency means that when life happens, such as unexpected repairs or illness, you don’t have to dip into the credit card,’ she said.
Finance expert Queenie Tan, from Sydney, said she and her boyfriend Pablo, 30, have put aside $30,000 – enough to last them for six months without a salary.
‘We have an emergency fund of $30,000 which means that if we stopped making money, we would be able to live for six months,’ Queenie said in a TikTok video.
She said the pair used a free finance app called WeMoney to help them save.
How to save for an emergency fund:
– Set up a separate savings account
– Automate your savings
– Maximise your offset account
– Keep adding to your emergency fund every month
– If you need to dip into your emergency fund, remember to top it up again afterwards
2. Live within your means
Ms Brown said living within your means and spending less than you earn is the ‘secret sauce to having great finances’.
You should also avoid looking at what others buy or own and instead consider what you can and can’t afford.
‘Too many people are trying to keep up not only with their peers, but with influencers on the internet who aren’t even buying the products they’re spruiking,’ she said.
‘My advice? Unsubscribe, unfollow and unfriend and start to think about what’s important to you, instead of being influenced to think or purchase a particular way.’
This means cancelling subscriptions, pausing memberships or swapping out expenses that aren’t necessary.
Ms Brown said living within your means and spending less than you earn is the ‘secret sauce to having great finances’ and to avoid looking at what others buy or own
3. Find additional income
Finding ways to boost your income is another tip Ms Browne recommends as it can lessen financial stress.
‘Too often we head straight to tightening the belt on our expenses (which is important) but we don’t think about finding more income,’ she said.
‘Whether that’s a second job, a side hustle, becoming a delivery driver, doing surveys online, renting out your stuff or even completing your tax return – finding more income can be a great way to supplement the rising cost of income and means you’re not solely reliant on your wage.’
For home owners, one of the simplest ways to find more income is to simply as your bank for a rate reduction.
Ms Browne said inside her course, the My Financial Adulting Plan, the average rate reduction received is 0.50% and the biggest saving was $15,000. Every single year.
‘Side hustles’ to boost annual income:
Dog walking or baby sitting
Offering a service to others
Selling unused products
Selling handmade items
Completing online surveys
Renting out your car
Finding ways to boost your income is another tip Ms Browne recommends as it can lessen financial stress. ‘Too often we head straight to tightening the belt on our expenses (which is important) but we don’t think about finding more income,’ she said (stock image)
4. Think of the long term
When it comes to investing or buying property, it’s best to think long-term and allow compound interest to work it’s magic over time.
Ms Browne said when it comes to investing, no-one has a ‘crystal ball’ and experts can only predict what will happen in the future.
‘Over the last few months, we’ve seen so much uncertainty and conflicting advice when it comes to whether the share market will continue to fall, whether property will fall, whether it’s safe to take on debt and more,’ she said.
‘Experts can make an educated guess, but let’s remember that most experts predicted a property market crash of 20 to 40 per cent when Covid arrived and in most areas, the reverse has been true.
‘Instead, it’s about investing for the long term, letting the power of compound interest do its magic and not being reactive about short term market rises and falls.’
5. Diversify your investments
Ms Browne also suggests diversifying our investment portfolio through property, shares and/or business to reduce loss and profit stable returns over time.
Consider opting for grouped ETFs (exchange-traded funds) rather than individual shares or investing in property in another a high-growth area.
‘Many Australians have a wage, a home, some superannuation and that’s it. This means that suddenly the balance of your superannuation is critical because that’s the only income source you’ll have when you stop working,’ Ms Browne said.
‘Unless you’re prepared to sell your home and downsize and not everyone wants to do that. That’s why I’m a fan of multiple income streams and diversification.
‘Diversification might be across property, shares and business so that if one falls the other is stable or rising.’
How to make an extra $10,000 in 12 months:
1. Get organised and set up a bank account called ‘My $10k Account’ – transfer all your savings and earnings into this account
2. Reduce, swap and pause expenses
3. Ask for better deals on current spending such as your home loan, rent, insurance, utilities and subscriptions
4. Change your behaviour
5. Become a professional house sitter
6. Lodge your tax return
7. Use cashback and savings sites
8. Use round up apps and sites to invest, save & pay down debt (Raiz, Super Rewards and Wisr)
9. Look for a second job that doesn’t necessarily require any skillset
10. Get paid to look at websites (TestNate and Usertesting)
11. Hire yourself and your skills out (Airtasker and Upwork)
12. Look for areas where there are potentially a shortage of workers and a demand – such as UberEats
13. Start a side hustle
14. Rent out your stuff
15. Take in a boarder or flatmate (Airbnb, Stayz, Homestay)
16. Receive cash by recycling your unwanted items
17. Sell general stuff (Gumtree and eBay)
18. Sell second hand text books (student vip, co-ops, gumtree, eBay, bookon marketplace) and course notes (student vip and nexus notes)
19. Find savings by being smart with your money
20. Cut up your credit card, refinance and consider moving to an interest only card if necessary