“Prosperous” means different things to different people – but over the years i have found that we all share very similar basic needs when it comes to money. The end-of-year holiday season is drawing to a close, so what better time to sit back and reconsider your financial position and to look at what can help make sure 2016 is a happy and prosperous year?

Prosperous

As mentioned above, everyone has a different idea of what “prosperous” means. It’s a similar thing with the ideas surrounding “rich”, “wealthy” or “financially secure”. Many years (decades?) of talking to people about money has cemented the idea fairly firmly into my mind – all of these phrases can be summed up in a slightly different perspective…

“Prosperous” is not having to worry about money. Not having to fret when a bill comes in, and not having to worry about whether i’m suddenly about to lose money from this or that. Being able to plan ahead for the things i need or want, and being confident that i’ll achieve those plans. Being able to focus on my family, friends or work without worries about money. Being able to concentrate on doing what it takes to be a good person, a good partner, a good family member and to better myself in the areas i am good at, and where i can make my life – and the lives of those around me – more fulfilling, challenging and rewarding. That’s what being prosperous really means.

Prosperous health checkup

Here’s a (very) quick checklist for your financial health check:

• Savings

  • Did you save as much as you expected for the 2015 year? If not, why not? If yes – well done! Can you do even better this year?
  • Have you adjusted your budget for your 2016 money calendar? Do you know when your big bills will be coming in?
  • Do you have sufficient reserves to cope with the unexpected in this very fresh new year?
  • Decide on an amount you want to save, and make sure your accounts and transfers are set up correctly to make it as easy as possible to do on a regular basis.

• Income

  • Is your income secure?
    • If you are employed, what are you doing to maximise your job and career opportunities?
    • Is it time to undertake extra study to increase your chances for promotion or pay rises?
  • Are you likely to receive any increases in income this year? Do you have plans for using what should be “extra” money? Remember, this extra money will be the most effective dollars you own – and don’t listen to those people who say “it’s not worth earning extra because you just pay more tax”. Sure, extra income may kick you into a higher tax bracket or just mean that you pay more tax but those last few dollars you earn are the most effective of all, and here’s why… Your regular income is taken up with tax and debt and living expenses – something that is fundamentally true no matter how much you earn. Most of us need that regular income in order to live and keep and maintain the assets and lifestyle we currently have. Most people struggle to save 10% of their regular incomes, so that means at least 90% of that regular income is being spent, and we have at most, 10c in the $1.00 available to spend on “extra” things that we may like. Yet earning an extra dollar above that figure and paying the maximum rate of tax would mean that you still have 50c of spending money in that shiny new dollar. In other words, the extra money you earn is five times more effective than your current regular income!
  • Are your expenses under control? For example:
    • Can you reduce any monthly expenses without giving up a benefit of some kind? Look around and you’ll be surprised how often you can achieve this.
    • If you have a monthly phone plan and are out of contract, perhaps you can move to a SIM only style plan and save some dollars?
    • If you pay your bills monthly and have sufficient cash in reserve, do you receive discounts for paying annually? With cash rates being so low, the monthly fees can often be much higher than the potential income you could earn if your money was kept in the bank. Not always – but it’s worth having a look.
    • Do you run to a budget? Even high income earners can benefit from a little bit of self-imposed austerity. If you haven’t tried it before, how about spending just one month working to a fixed budget for those little items like takeaway coffees / drinks / food or even your weekly food and entertainment costs?
    • If you have investment loans, are you saving up for any loan interest prepayments – especially those falling due at the end of the financial year?
    • If you have investment property – have you an established maintenance/upkeep plan and do you know when you are likely to incur some larger bills?
    • The government-run website MoneySmart includes some basic tools for budget planning, which can be found here.

• Insurance

  • When was the last time you checked your house and contents insurance?
    • Is the level of cover still appropriate? Do you know what your excess is? Do you know whether your personal possessions are covered if they are lost or stolen when away from the home – like when you are enjoying time at the beach or out-and-about?
  • Is your car insurance up-to-date in terms of value and the type of cover you have? It can sometimes be a helpful exercise to pull out the policy document and rediscover just what you are (and are not) paying for.
  • Is your income protection cover still appropriate, and have you checked to see that the money you are paying is buying you the cover that you think you have?
  • Hands up all those who are completely up-to-date with the insurance cover provided within their superannuation fund? OK – the two of you can read on – everyone else needs to pull out the latest statement and see where they are up to.

• Debt

  • Are you managing your debt ok?
  • Have you worked out when different debts will finally be paid and when you can expect to get some of that regular repayment money directed to your bank account instead? Any plans for that fresh new savings amount?
  • Can you refinance your debt to better spread the repayment load or bring down the total costs you are likely to incur?
  • Are you focusing any debt-repayment efforts to the most efficient area?

• Investment

  • Do you have a short / medium / long term savings and investment plan?
  • Does your investment follow a particular strategy – passive / active / speculative? Does that strategy need a shake-up for the fresh new year?
  • Are you on track for your future plans? Most people have some idea of where they want to go or what possibilities they could achieve – but very few have ever taken the time to come up with a sensitivity analysis to see what their bottom line is likely to be.

• Tidy up your money affairs

  • Is your will up-to-date? Do you even know where it is?
  • If you do have a will, does the executor have a copy or know where yours is?
  • Have you checked with your spouse or dependents (whoever they may be) to see if they know what position you will be leaving them in in the event of your death or temporary or total disablement through sickness or accident?
  • If you own or are part of a business, do you know where you stand if other people within the business were to die or be disabled? Do you have a business will?
  • If you have children, have you given thought or made plans for their guardianship should something happen to you?
  • Is it appropriate to have someone hold a power of attorney to help deal with your money or financial affairs in the event that something should happen to you?
  • Are your savings or investments in the best ownership structure? Is there an ability to have your income or earnings occur in a more tax or cost efficient manner?
  • If you are in a (relatively) new relationship, are you aware of just when you may need to share some of your assets/income in the event of a breakup in that relationship?
  • Have you set out an overview of your accounts, debts, insurance and investments in such a way that you have a clear idea of where you are, and where you are likely to go?

These are Michael’s 2016 New Year tips. No advice – just some ideas and thoughts on areas that you should look at in order to make 2016 a great and prosperous year.

Enjoy 2016!

Michael

 

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Great Disclaimer

Always remember that nothing in this post or on this site is to be interpreted to be personal financial advice. It is general advice only, and a poor version of that as it is really just my thoughts and impressions. Whether i know you or you know me or we are complete strangers, you should not interpret any of this content as being definitely appropriate to you – even if i use the term “you” and if i sound overly familiar! Just so you are up to date on current financial planning rules and laws – personal financial advice can only be provided after due investigation into your current position, objectives, attitudes and suitable research into appropriate alternatives. Any personal financial advice must be documented in a “Statement of Advice” that sets out all of these points, as well as any financial cost to you or benefit to the person providing the advice. So you can see why that wouldn’t be possible in a website post such as this.

Image Source

Images are sourced from www.unsplash.com which has the most beautiful high definition photos on display each week. In this case, photos by Jordan McQueen and Bino Storyteller.