A personal finance expert has listed five smart financial strategies everyone should adopt as interest rates and the cost of living continue to rise.
Melissa Browne, Founder of My Financial Adulting Plan, encourages others to learn financial literacy to achieve their personal financial goals by saving for an emergency fund, thinking long-term, diversifying investments, and living below your means.
“The problem is that we’re also in a time of declining financial literacy, which means we know we should be doing something, we just don’t know what,” Ms Browne said.
The Reserve Bank of Australia has raised interest rates for five consecutive months this year in an attempt to curb inflation.
Australian personal finance expert Melissa Browne (pictured) encourages others to learn financial literacy to achieve their personal financial goals by saving for an emergency fund, thinking long term, diversifying investments and living below it of your means
1. Create an emergency fund
As a general rule, it’s wise to have at least three months of expenses in a separate bank account.
Ms Browne said when Covid hit the emergency funds they were “suddenly super sexy” due to the uncertainty of the pandemic.
“Having a pot of money for emergencies means that when life hits, like 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, had set aside $30,000 – enough to last six months without pay.
“We have a $30,000 emergency fund, which means if we stopped making money, we could live for six months,” Queenie said in a TikTok video.
She said the couple used a free fundraising app called WeMoney to help them save.
How to save for an emergency fund:
– Create a separate savings account
– Automate your savings
– Maximize your clearing account
– Keep adding to your emergency fund each month
– If you need to dip into your emergency fund, remember to top it up 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 good finances”.
You should also avoid looking at what others buy or own and instead consider what you can and cannot afford.
“Too many people try to follow not just their peers, but internet influencers who don’t even buy the products they offer,” she said.
‘My advice? Unsubscribe, unsubscribe, and unsubscribe and start thinking about what’s important to you, instead of being influenced to think or buy in a particular way.
This means canceling subscriptions, suspending memberships or exchanging expenses that are not necessary.
Ms Brown said living within your means and spending less than you earn is the ‘secret sauce to having good finances’ and avoiding looking at what other people buy or own.
3. Find additional income
Finding ways to increase your income is another tip Browne recommends, as it can reduce financial stress.
“Too often, we head straight for tightening our spending (which is important) but don’t think about finding more revenue,” she said.
“Whether it’s a second job, a side hustle, becoming a delivery driver, doing online surveys, renting out your stuff or even filling out your tax return – finding more income can be a great way to supplement the rising cost of income and means you’re not just dependent on your salary.
For homeowners, one of the easiest ways to find more income is to simply ask your bank for a rate cut.
Ms. Browne said in her course, My Financial Adulting Plan, that the average rate reduction she got was 0.50% and the biggest savings was $15,000. Every year.
‘Side hustles’ to increase annual income:
Dog walking or babysitting
Provide service to others
Sell unused products
Sale of handicrafts
Complete online surveys
Rent your car
Finding ways to increase your income is another tip Browne recommends, as it can reduce financial stress. ‘Too often we head straight for tightening our spending (which is important) but we don’t think about finding more revenue,’ she said (stock image)
4. Think long term
When it comes to investing or buying property, it’s best to think long term and let compound interest work like magic over time.
Ms Browne said that when it comes to investing, no one has a ‘crystal ball’ and experts can only predict what will happen in the future.
“Over the past few months we have seen so much uncertainty and conflicting advice about whether the stock market will continue to fall, whether real estate will fall, whether it is safe to go into debt and more. “, she said.
“Experts can make an educated guess, but let’s remember that most experts predicted a 20-40% housing market crash when Covid arrived and in most areas the reverse was true.
“Instead, it’s about investing for the long term, letting the power of compound interest work its magic, and not reacting to short-term market ups and downs.”
5. Diversify your investments
Browne also suggests diversifying our investment portfolio across properties, stocks and/or businesses to reduce losses and steady profits over time.
Consider opting for pooled ETFs (exchange-traded funds) over individual stocks or investing in real estate in another high-growth area.
“Many Australians have a salary, a house, a pension and that’s it. That means suddenly your superannuation balance is critical because it’s the only source of income you’ll have when you stop working,’ Ms Browne said.
“Unless you’re ready to sell your house and downsize and not everyone wants to do that.” This is why I am a fan of multiple sources of income and diversification.
“Diversification can be across property, stocks, and companies, so that if one is falling, the other is stable or rising.”
How to earn an extra $10,000 in 12 months:
1. Get organized and create a bank account called “My $10,000 Account” – transfer all your savings and income to this account
2. Reduce, trade and suspend spending
3. Ask for better deals on day-to-day expenses like your home loan, rent, insurance, utilities, and subscriptions
4. Change your behavior
5. Become a professional house sitter
6. File your tax return
7. Use cashback and savings sites
8. Use apps and sites to invest, save and pay off debt (Raiz, Super Rewards and Wisr)
9. Look for a second job that doesn’t necessarily require skills
10. Get paid to review websites (TestNate and Usertesting)
11. Commit yourself and your skills (Airtasker and Upwork)
12. Look for areas where there is a potential worker shortage and demand – like UberEats
13. Start a side hustle
14. Rent your stuff
15. Welcoming a boarder or roommate (Airbnb, Stayz, Homestay)
16. Receive money by recycling your unwanted items
17. Sell general stuff (Gumtree and eBay)
18. Sell used textbooks (student vip, co-ops, gumtree, ebay, bookon marketplace) and lecture notes (student vip and login notes)
19. Find savings by being smart with your money
20. Cut your credit card, refinance, and consider switching to an interest-only card if necessary