In navigating the complex landscape of personal finance, the question often arises: where should one begin? Should you pay off your credit card debt or should you top up your super? Establishing a clear plan is key to reducing financial stress and securing a brighter, financially well future. Let me share my 5 priorities (in order of preference) to help guide you along this journey:

  1. Save for 3 months of salary/expenses: Everyone needs to build an emergency fund, as it is crucial for financial stability. This fund acts as a safety net in case of unexpected expenses or loss of income (think COVID). Aim to save at least three months’ worth of living expenses to cover any emergencies without resorting to debt.
  2. Pay off Bad Debt – lowest first: Bad debt, such as high-interest credit card debt or payday loans, can be a significant obstacle to financial progress. Prioritise paying off these debts, starting with the ones with the lowest balances first. This approach, often called the debt snowball method, can provide a psychological boost as you eliminate smaller debts, motivating you to continue paying off larger ones.
  3. Save for Deposit of first property: Owning a home or investment property is a significant milestone for many individuals, and saving for a deposit is often the first step towards property ownership. Allocate funds towards saving for a deposit on your first property. High Interest accounts are best for this as short-term investing.  Anything else like shares are long term investments. If difficult to save full 20%, discuss with a mortgage broker or property expert options for Lenders Mortgage Insurance (LMI) to help you get into property with a smaller deposit.
  4. Start a regular Savings plan with Shares: Once you’ve established your emergency fund, paid off bad debts, and saved for a property deposit, consider investing in shares through a regular savings plan. Investing in shares can offer opportunities for long-term growth, wealth accumulation and a future income stream when you want to slow down. Diversify your investment portfolio and consider seeking professional advice to ensure your investment strategy aligns with your financial goals and risk tolerance.
  5. Top up your Super with any spare funds: Superannuation (retirement savings) is an essential component of long-term financial planning. While it’s advisable to prioritise more immediate needs and goals, such as building an emergency fund and paying off debts, don’t overlook the importance of saving for retirement as very tax effective as it can be done through salary sacrifice (pre-tax). It is locking your funds until retirement so that is why it is my final priority even though will help your financial future in retirement.

By following these priorities diligently, you lay the groundwork for a secure financial future. Remember, financial planning is a journey, and it’s essential to regularly review and adjust your plan as your circumstances change. As a bonus priority, find someone who can keep you accountable or  consider seeking guidance from a professional, as you don’t know what you don’t know. Here’s to turning your financial aspirations into reality and living a financially well life.

 

Article by Marc Bineham – Money coach, speaker and award-winning author of The Money Sandwich