There are two very different ways that you can choose to live your life. You can live a frugal life where you can work hard and earn more than you can spend. You can track your income and your expenses so you would have a good idea where your money is going. Live a balanced life where you can buy what you want and what you need without overspending and having to rely on your credit card. Live a life where you can use personal loans in Australia for big purchases that can help you level up. Or, you can live in the present with no regard for the future and end up stuck with endless debts.
Admittedly, it is obvious which life we want you to lean towards more. Loans, especially personal loans, are only meant to be short term solutions. You are not supposed to depend on them for a long time. They can help you to fund substantial one-time expenses for a medical bill, a new car, a new home, or a temporary case of financial emergency. However, they are not meant to be your only source of funds for a long time, much like how emergency funds only serve as a buffer until you find a means to earn money.
Financial Tips for a Stable Life
Now that we have established that you are not supposed to live on loan funds and credit card debts for the rest of your life, here are some life tips that you can follow so you can work towards financial stability:
This is the oldest trick in the book for saving up. You must have heard it a thousand times; however, this old school tip is still one of the most efficient ways to be financially stable. This does not only deal with your cash on hand, but it also helps you develop a healthier spending habit.
Budgeting allows you to see how much you earn and how much you spend each month. It will help you track where your money is going. It would be easier for you to plan for the future if you know what your spending habits look like. You can either do your budget the traditional way, which is through manually writing it down with pen and paper, or do your budget through an app.
If you have never done your budget before, then it is best if you check the last 3 months of your bank statements. You can divide the expenses into categories, analyse what you are spending on and see which costs can you cut off.
Here is a suggested list of categories for your expenses:
- Bills and Utilities
- House Maintenance
- Travel and Holidays
2. Pay yourself first.
This does not mean that you are going to spoil yourself whenever you get your salary. This means that you need to set a target savings amount, then decide how much you need to set aside every payday to reach that goal. You can move that predetermined amount to a cash savings account, invest it in your taxable amount, or add it to a pension saving and invest it.
Once you have moved that money, you are not supposed to touch it anymore. You need to live off the money that is left.
3. Do not borrow money unless it is necessary.
As mentioned previously, any type of personal loan in Australia is only meant to be a short term solution for large one-time expenses or financial emergencies. Even then, you are not supposed to let yourself stay in a position where you are living off the loan money.
Although there is no rule that you cannot use the money you borrowed for luxury items, it is still not recommended that you do so. For instance, if you are applying for a loan so that you can buy a new Louis Vuitton bag to add to your collection when you are already struggling to put food on the table, then you may have to rethink your life decisions. There is nothing wrong with spoiling yourself, but if you are aiming for financial stability, you need to make wise financial choices.
Some debts are good in the sense that they are going to be bringing something of value into your life. These loans include:
- Student loans – You are investing in your future. Education can help you progress in life. This kind of debt can bring in a good ROI in the future, especially once you have started working on your career.
- Mortgage – You will eventually need a house of your own. You can’t live with your parents or rent an apartment forever. You may not fully feel independent as long as you are living with your parents, and renting an apartment for the rest of your life has an effect on your monthly budget so you might as well own the house.
- Business – Starting your own business will require significant capital. You may not have enough funds to do this in the beginning so you could need a little help financially. If you invest your money on your business strategically, it can possibly bring you amazing returns.
4. Do not use your credit card unless you are sure that you can pay it in full every month.
Credit cards allow you to buy things that you cannot afford with your current income. Credit card debts come with a higher interest rate than the average personal loan in Australia, so if you borrow more than you are capable of repaying, then you are in for a rough ride. Using a credit card actually has its own perks, like extra rewards when shopping or sometimes even discounts, but you need to know how to use it strategically.
5. Do not spend more than you earn.
There are times that you cannot avoid purchases that are out of your financial reach, for example, it is unlikely that you can pay for a car or a house with cash in full. Or maybe your child’s tuition fee is a little more than your salary can handle. However, as much as possible, do not make your situation worse by splurging on things that you do not really need.
6. Set up an emergency fund.
It is always a good idea to have a Plan B, especially with your financials. You don’t know when the next emergency is going to be. So, when you budget and decide to pay yourself first, it is best that you consider an emergency fund as well. Your emergency fund should be worth at least 3 months of your salary, but of course, the more you save, the more secure you are. It should also be in a separate account from your personal savings account.
7. Set a goal for yourself.
Unless you are a natural-born saver, or just financially conservative in general, saving money can seem so dull. Thinking of it as a mundane activity might tempt you not to save anymore. What you can do to ease the boredom is to set yourself goals so that your efforts would have a purpose other than just financial security. Your goal can be anything between saving for a holiday to buying a new gadget.
8. Learn how to invest.
Having an investment is having a passive income. Of course, this does not mean that you should invest in the first offer you get. Take time to study how investments work so you can make an informed decision on this matter. You can also ask for help from a professional so that you have someone to assure you about the steps that you are taking.
9. Track what your net worth is.
You can track your net worth by subtracting your liabilities with your assets (Assets – Liabilities = Net Worth).
But first, what are your assets:
- Cash in bank accounts
- Investment account value
- Investment property value
- Personal home value
Then, here are your liabilities:
- Student loans
- Car loans
- Personal Loans
- Any other loans
- Credit card balance
What is the purpose of knowing your net worth? Knowing your net worth gives you a good idea of your current financial standing. It can also give you a good idea of how far you are from your goals.
10. Earn more money.
If you earn more money, you can save more money. But this is easier said than done. There is a limit to how much money you can live off of, so you cannot just keep on restricting yourself from spending. If you manage to earn more, you can save more each month. You can try turning a hobby into a business or rendering a few extra hours at work.
Reaching the state of financial stability is not easy, but it is worth all the sacrifices and trouble. It may not be possible to afford everything with cash all the time. That is why your credit card and personal loans in Australia exist. However, keep in mind that you should not always depend on these two things for your survival. Build a better future for yourself and your loved ones.
The opinions expressed in the Blog are for general informational and entertainment purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific investment product. It is only intended to provide education about the financial industry. The views reflected in the commentary are subject to change at any time without notice.