The start of a new Financial Year is the perfect time to reassess your personal monetary position and shed some financial baggage.
In the style of Marie Kondo, the Japanese organising guru who has inspired millions to clean out their cupboards, decluttering your finances this month (June), can bring many benefits for the ensuing 12 months. While you work through all your contracts, investments and commitments, you will no doubt discover many that no longer fit your lifestyle or are simply costing you in unnecessary fees.
And if that is the case, then it is likely that such commitments will not be sparking any joy. And joy is the key criteria Kondo uses to determine whether you hold onto something or let it go.
So how does decluttering work with your finances and where do you start?
Where are you?
The first step is to assess where you are right now. That means working out your income and your expenses. There are many ways to monitor your spending including online apps and the good old-fashioned pen-and-paper method. Ensure that you capture all your expenditure as some can be hidden these days with buy now pay later, credit card and online shopping purchases.
The next step is to organise your expenditure in order of necessity. At the top of the list would be housing, then utilities, transport, food, health and education. After that, you move onto those discretionary items such as clothes, hairdressing and entertainment.
Work through the list determining what you can keep, what you can discard and what you can adapt to your changed needs. Remember, if it doesn’t spark joy then you should probably get rid of it.
Streamline excess accounts
Now you need to look at the methods you use when spending. Decluttering can include cancelling multiple credit cards and consolidating your purchases into the one card. This has a twofold impact: Firstly, you will be able to control your spending better; and secondly, it may well cut your costs by shedding multiple fees.
Review your superannuation to check whether your investments match your risk profile and your retirement plans. If they are not aligned, then it is likely they will not spark much joy in the future when you start drawing down your retirement savings. If you have many years before retirement and can tolerate some risk, you may consider being reasonably aggressive in your investment choice as you will have sufficient time to ride investment cycles. You can gradually reduce risk in the years leading-up to, and following retirement.
Review your insurances
When it comes to insurance, make sure your cover reflects your life stage. For instance, if you have recently bought a home or had a child, you may need to increase your life insurance cover to protect your family. Or if your mortgage is paid-off and your children have left home, you might decide to reduce your cover.
Analyse your investments
If you also have investments outside your super, they too might benefit from some decluttering. As the end of the financial year approaches, now is a good time to discuss with your adviser or trusted tax professional. Review the timing of selling underperforming assets and the general rebalancing your investments.
Many people who have applied Marie Kondo’s decluttering rules to their possessions talk about the feeling of freedom and release it engenders. It may well be that applying the same logic to your finances, will bring you one step closer to financial freedom.
If you would like to review or make changes to your finances, please contact us directly to discuss.