A personal finance expert has listed five smart financial strategies everyone should follow as interest rates and the cost of living continue to rise.
Melissa Brownfounder 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 that we’re also at a time when financial literacy is declining, which means we know we have to do something, we’re not sure what it is,” Brown said.
The Reserve Bank of Australia has raised interest rates for five consecutive months this year in an effort to reduce inflation.
Australian personal finance expert Melissa Brown (pictured) encourages others to become financially literate to reach personal money goals by saving for an emergency fund, thinking long term, diversifying investing and living below your means.
1. Create an emergency fund
As a general rule, it is wise to have at least three months of your expenses stashed in a separate bank account.
Brown said that when Covid hit emergency funds it was “suddenly very exciting” due to the uncertainty of the pandemic.
“Having an emergency amount of cash means that when life happens, like unexpected repairs or illness, you don’t have to indulge in a credit card,” she said.
Financial expert Queenie Tan, of Sydney, said she and her boyfriend Pablo, 30, set aside $30,000 – enough for six months without pay.
“We have an emergency fund of $30,000, which means if we stop making money, we’ll be able to live for six months,” Queenie said in the TikTok video.
She said the couple used a free financial app called WeMoney to help them save.
How to save for an emergency fund:
Create a separate savings account
– Automate your savings
– Maximize your offset account
– Keep adding to your emergency fund every month
– If you need to dip into your emergency fund, remember to refill it again afterwards
2. Living within your means
Ms Brown said that living within your means and spending less than you earn is the “secret sauce to having big money”.
You should also avoid looking at what other people buy or have, and instead think about what you can and can’t afford.
“A lot of people are trying to keep up with not just their peers, but Internet influencers who don’t even buy the products they’re promoting,” she said.
‘My advice? Unsubscribe, unfollow, unfriend and start thinking about what’s important to you, instead of being influenced by thinking or buying a certain way.
This means canceling subscriptions, pausing memberships, or switching unnecessary expenses.
Ms Brown said that living within your means and spending less than you earn is the “secret sauce for having big money” and for avoiding looking at what other people buy or have.
3. Find additional income
Finding ways to increase your income is another piece of advice Brown recommends because it can reduce financial stress.
“A lot of times we go straight to clamping down on our expenses (which is important) but we don’t think about creating more income,” she said.
Whether it’s a second job, a side business, becoming a delivery driver, taking online surveys, renting your stuff or even completing your tax return – finding more income can be a great way to supplement the increasing cost of income and mean you’re not It just depends on your wages.
For homeowners, one of the simplest ways to find more income is simply to cut rates as your own bank.
Ms. Brown said in her course, My Adult Financial Plan, that the average rate reduction received was 0.50% and the largest saving was $15,000. every year.
Side hustle to increase annual income:
dog walking or baby sitting
Provide service to others
Sell unused products
Selling handmade items
Complete online surveys
rent your car
Finding ways to increase your income is another piece of advice Brown recommends because it can reduce financial stress. She said, “A lot of times we go straight to belting out our expenses (which is important) but don’t think about finding more income” (stock photo)
4. Think long term
When it comes to investing or buying real estate, it’s best to think long-term and let compound interest work as a charm over time.
Brown said that when it comes to investing, no one has a “crystal ball” and only experts can predict what will happen in the future.
“Over the past few months, we’ve seen a lot of uncertainty and conflicting advice when it comes to whether the stock market will continue to go down, whether real estate will go down, whether it’s safe to take on debt and more,” she said.
Experts can make an informed guess, but remember that most experts predicted a 20-40 per cent crash in the real estate market when Covid arrives and in most areas, the opposite is true.
“Instead, it’s about investing for the long term, letting the power of compound interest work its magic and not reacting to the short-term market ups and downs.”
5. Diversify your investments
Ms. Brown also suggests diversifying our investment portfolio through property, equity and/or business to reduce losses and achieve stable returns of profit over time.
Consider choosing pooled ETFs (exchange-traded funds) rather than individual stocks or investing in real estate in another high-growth area.
Many Australians have a wage, a home, some retirement and that’s it. This means that suddenly your pension balance becomes critical because that is the only source of income you will get when you stop working.
Unless you’re ready to sell and downsize your home and not everyone wants to do it. That’s why I’m a fan of multiple income streams and diversification.
“It may be diversification across property, stocks and business so that if one falls the other is stable or rises.”
How to earn an extra $10,000 in 12 months:
1. Get Organized and Create a Bank Account Called “My $10K Account” Transfer all your savings and winnings to this account
2. Reduce, swap and stop expenses
3. Ask for better deals on current spending like home loan, rent, insurance, utilities and subscriptions
4. Change your behavior
5. Become a professional housemaid
6. Submit your tax return
7. Use cashback and savings sites
8. Use rounding apps and websites to invest, save and pay off debt (Raiz, Super Rewards, Wisr)
9. Find a second job that doesn’t necessarily require any skill set
10. Get paid to search websites (TestNate and Usertesting)
11. Hire Yourself and Your Skills (Airtasker and Upwork)
12. Look for areas where there is a potential shortage of workers and demand – like UberEats
13. Start a side hustle
14. Rent your stuff
15. Take Borders or an Apartment Buddy (Airbnb, Stayz, Homestay)
16. Get cash by recycling unwanted items
17. Selling General Items (Gumtree and eBay)
18. Sell used textbooks (vip student, co-ops, gumtree, eBay, bookon marketplace) and course notes (vip student notes and nexus)
19. Find savings by being smart about your money
20. Cut your credit card, refinance it, and consider switching to an interest-only card if necessary