The first two months of the year are often a time of reflection when we look back at what we’ve achieved, celebrate our successes and plan for the year ahead. It’s also a great time of the year to make some solid plans for your financial future.
Take advantage of this time to take a closer look at your finances. Try to understand your debt and income, how much money you really owe and what your monthly payments are.
Make a list of everything you owe and look at how much you need to pay back every month. This would include credit card payments and home loans.
Find out exactly what you’re paying – work out the interest rates on each of your debts (include loans, overdrafts, credit cards, student loans and home loans). Write down the interest you’d pay as well as your monthly payments.
The next step is to formulate a plan to repay your debt. If you have a number of smaller debts – personal loans, credit cards, store cards – it may be a good idea to combine them into one loan, at the lowest possible interest rate (consolidate your debt).
Try to avoid high-interest debt. Credit cards and unsecured personal loans can be expensive – so make sure you understand all the fees that may be charged.
A good way to ensure your regular payments go out on time is to set up automatic bill payments online. This way you can also save on early bill repayments.
If you often find yourself saying that you don’t know where you spend your money, a good idea would be to keep a spending journal for at least two weeks. Write down everything you spend money on – a morning coffee, a sandwich for lunch every day, paying for parking, a snack or a pair of shoes. You’ll be amazed at how much you spend each day and on what. This will allow you to take a closer look at your spending so you can find ways to save.
You should also consider whether you want to save and pay off your debt. A lot of people try to save a little money every week on top of trying to pay off debt.
Ask for help and advice on how you can reduce the interest you pay. Your bank or financial adviser should be able to help you with this. Options include combining your debts into a single loan with a lower rate, using credit card balance transfer offers or topping up your home loan to repay more expensive debt.
The key to talking to a professional is to be as honest and upfront as possible. You may be embarrassed about your shopping habits or your addiction to fine coffee, but you won’t get useful advice if you’re not honest about what it is that you’re spending your money on.
When looking at your debts and how you want to repay them, try to repay the largest ones first. Plan and budget to pay off your most expensive debt as quickly as you can afford to. When that’s done, move on to the next most expensive one.
This is the perfect time to think about what you want to achieve in the year ahead, for example, you might be thinking about buying a house or a car, or going on an overseas holiday.
The first step is to gather as much information as you can. You can start by asking for financial advice from your bank or go online and research the various ways you can get what you want.
Draw up a budget and plot your spending against your income. Decide how much money you want to save and look at where you can cut costs.
The biggest problem most people face, however, is sticking to the plan. Find ways to make your goals achievable and reward yourself once you’ve passed key milestones. Looking after your finances will soon become second nature if you find ways that you know will work, and that you’ll be able to commit to.
Lee Hatton is BNZ’s Head of Retail Bank: Northern Region. This article is intended as a general discussion only. The views expressed are her own and do not necessarily represent those of BNZ or its related entities.