“Knowledge is of no value unless you put it into practice.”
Effectively managing your debt isn’t just the key to a good credit score, but it’s one way to set yourself up for success. Finance plays a big role in your life, and it dictates what kind of life you can live. Being good with your finances, and effectively managing your debt, can be the difference between living life how you want to live it and barely getting by.
With this in mind, we’re going to take you through some of the key concepts that we’ve explored during this online course, so you’re refreshed and equipped with the knowledge you need to financially thrive!
In this module, we will cover:
Whilst the specifics you employ to manage your debt will differ depending on your individual circumstances, we’ve put together four simple steps to help you get on top of your debt, and stay on top!
Before you can manage your debt, you need to know exactly what debt you have and how much spare cash is left after all your obligations.
If you don’t know where to get started, check your credit reports. They will list all your current credit accounts, maybe even some that you forgot about. Your credit report may include mortgages, credit cards, personal loans, business loans under your name and even in-store credit cards. However, if you owe relatives or friends, this won’t be listed in your credit report.
While we at Tippla will always do our best to provide you with the information you need to financially thrive, it’s important to note that we’re not debt counsellors, nor do we provide financial advice. Be sure to speak to your financial services professional before making any decisions. You can find more information on prioritising debts on the National Debt Hotline website.
With a strategic approach, you don’t necessarily want to just increase your repayments for all debts. There are better ways to structure your repayments. If you do have spare money to pay towards your debt, you should prioritise debt you want to get rid of first and increase your repayments.
But how do you know which ones to choose first? While all debt is important, some may have serious legal implications and should be rated higher on your priority list.
Here are some examples:
By allocating a specific amount of money for each category in your life, you ensure that there is enough money for each category. However, sticking to a set budget is easier said than done. It is important to set a realistic plan that includes all areas of your life, even spending. We will cover some steps to set up a financial plan in the next module.
There are plenty of apps that you can use to track your spendings. Additionally, most banks allow you to set up designated savings accounts for certain budgets.
Credit offers change all the time and sometimes, a better option may be available while you are still repaying your old debt. In some cases, refinancing a loan under better conditions will end up being cheaper for you.
Refinancing, as the name suggests, is when you finance something again. Typically this is done with new loans at a lower rate of interest. It is common for people to refinance their mortgages.
In essence, this basically means you trade in your old mortgage for a new one – sometimes at a new balance. When you’re refinancing your mortgage, your bank or lender pays off your previous mortgage with the new one. However, you can refinance more than just your mortgage.
The benefits of refinancing include a better interest rate which means lower monthly repayments, shortening your loan term, consolidating your debts and more!
If you have accumulated debt from multiple sources, you may be able to consolidate them into one loan.
Before consolidating your debt, there are a number of things you should consider and check first.
Putting savings aside is an investment in your future and a great way of providing security for yourself. A solid savings strategy could help you:
If you think savings are that boring thing your parents tell you to have, we need to break the news to you: looking after your financial wellbeing can be fun and empowering! It doesn’t mean you have to miss out on anything either – at Tippla, we believe in the concept of finance without FOMO.
There are many different types of budgets out there, here are a few.
Do you want to move towards spending less money in the long run? Some people go into extremes and commit to a month of non-spending to reset their personal habits. If that’s just not your cup of tea, you can use a ‘transition budget’ instead. By changing your budget gradually over the next couple of months, you change your spending habits in a more sustainable way instead of asking for a habit change straight away.
So how can you do this? Work out your goal budget and then use a series of e.g. 6 months to move towards this budget. Therefore, you don’t create just one, you create 6 realistic budgets towards your dream budget. But don’t forget to still accommodate your actual needs such as rent and bills. These parts of the budget won’t change while other parts may be more flexible.
If you don’t know where to start, this is a great way to set up a first budget. You can adjust over time according to your income and needs. The general idea is to split your income into three different categories: needs to cover everything that is non-negotiable. Payments like rent, groceries, utilities and transportation would be considered needs. Wants includes fun items and events that you splurge on, and savings is probably self-explanatory!
When setting up your budget, split your income the following:
By the end of each month, anything that is leftover in wants and needs should be transferred into savings. Each month starts with a fresh budget.
Saving money is much harder if you let the money sit in your personal account, looking like it could be spent. Nominate a certain amount and automatically transfer it to a savings account right after payday. This will eliminate the false feeling of having more money to spend than you actually should and helps you grow your savings without having to do anything.
It doesn’t have to be a huge amount. Instead, rather set a realistic savings goal and save towards it. If you put $50 into savings each fortnight, you save $1,300/year.
Don’t dig into your savings just because your budget feels a little tight this month and you want to go for brunch with friends. Savings are for emergencies and this is not one of them! Consistency is important if you want to grow your wealth. Discipline yourself with your spendings and you will feel a million times better about your finances in the long run.
Life doesn’t always go to plan as we all had to learn with the recent pandemic. You will sleep much better at night knowing that you’ve got your own back in case of an emergency. Having enough money in your bank account to cover your expenses for a while will take a huge weight off your shoulders.
You don’t have to rush. Set up a savings account and slowly save towards your goals. If you want to take it easy, start with the goal of saving one month of income as a safety buffer. Once that is achieved, save your way towards three months.