After a difficult year of COVID disruptions and uncertainty, the summer holidays cannot come quickly enough. It’s a chance to refresh and reflect on the year that was, and hopefully set some goals for the year ahead.
Yet this year more than most, many of us may feel that our personal and financial priorities have shifted depending on our experience of the pandemic.
Regrets, we have a few:
While many people’s lives were turned upside down by lockdowns, not everyone suffered financially.
If you kept your job or were able to access COVID disaster payments, you may even have saved money with the cancelling of holiday plans and shutdowns of restaurants, theatres and leisure activities.
In a recent survey of 2,000 Australians by the Australian Financial Planning Association of Australia (FPA,) 11 percent said their financial position had strengthened over the past 12 months, while a further 46 percent said nothing much had changed. However, 17 percent said their position had worsened and nearly one in four reported being stressed by their financial position.i
Worryingly, the survey found that one in five Australians didn’t have enough savings to get through the crisis and 23 percent felt stressed about their finances. Their biggest regrets were not saving enough, spending too much on take-aways and non-essential items, and not paying off debt quickly.
While many of us learned some painful lessons during the pandemic, this may provide us with the perfect opportunity to reset our priorities and do better in the future.
The enforced lockdowns made us value simple things like the importance of family and community. But uncertainty surrounding the economy, jobs and our personal finances also encouraged many of us to reassess our approach to money.
According to the FPA survey, 45 percent of Australians say the pandemic has made them more frugal. Large numbers also say they have increased savings (44 percent), paid down debt (41 percent) and created a budget (39 percent.)
Smaller but still significant numbers responded to the pandemic by topping-up their Super, investing more outside Super or increasing health insurance.
The big question now is, can we stick to these good habits and build on them in the year ahead?
When it comes to goals for the next 12 months, the FPA survey found people were split between hitting a savings goal (52 percent) and going on holiday (44 percent) as their top priority. Paying off the mortgage and reducing credit card debt were also popular options.
Given the recent strong performance of shares and residential property, starting an investment plan is also high on the list of priorities. This is especially so amongst younger people who are using new digital platforms to take greater control of their investments, in and out of Super.ii
As restrictions ease and the economy recovers, hopefully we can all manage to have a bit more fun next year, while simultaneously getting our finances into good shape.
To ensure you strike the right balance, it’s important to give your personal and financial goals the attention they deserve and draw-up a plan to help achieve them.
Three tips to help reach your goals:
A financial plan does not have to rely on complex financial products or strategies. In fact, getting the simple things right, is often best.
- Build a cash buffer to tide you over in an emergency. This was one of the biggest lessons of the pandemic. It’s generally recommended that you have around three months’ living expenses at call. This might be in a savings account or in a mortgage redraw facility.
- Manage your cash flow. Even high-income earners can fall into the trap of spending more than they earn. So, take a financial snapshot, noting your monthly income from all sources and the balances on your savings accounts. Then subtract your monthly expenses, including debt repayments. If there is a shortfall, look for cost savings.
- Draw up a financial plan. We are here to help you set short and long-term goals, develop strategies to achieve them, as well as provide support to keep you on track.
If you would like us to help you set and kick some goals in 2022, please do not hesitate to get in touch.
i All statistics in this article (unless otherwise stated) are from the FPA Money & Life Tracker Freedom Edition 2021: A snapshot of how 2,000 Australians have fared since COVID-19, https://fpa.com.au/wp-content/uploads/2021/10/2021_FPA_Money_and_Life_Tracker_Freedom_Edition.pdf