Financial feng shui can only be achieved if you have solid foundations. The first of these is to be the captor of your finances by knowing exactly where your money is coming from, and going to.
Lots of apps are designed to help you with this but don’t consider your overall financial position or provide you with personalised advice. Some are like a mystery box without instructions and who’s got headspace for that?
You’re not alone. Half of Australia’s workers worry about their personal finances and one in three say their financial situation is a major cause of stress.* So let’s tackle some of that.
The yin and yang of debt
It’s important to understand the difference between good and bad debt so you know how to put your hard earned cash to its best use.
Good debt. This type of debt is taken on as a way to build wealth in the long term. For example, a mortgage enables you to do more than just buy a home. Structured well and used wisely it helps you progress in life by helping you afford things like school fees or a second property.
Bad debt. This type can suck you into a black hole, diminishing your wealth over time. For example, a credit card with high interest (more than 22%pa) and ongoing fees will be hard to eliminate and become costly if you can’t pay off the outstanding balance each month.
What’s the skinny?
If you only pay the minimum amount, it takes longer to pay off a loan and you’ll pay more interest (ie the loan ends up costing more). This is how lenders make most of their money.
For example, it takes 4 years and 3 months to repay a credit card balance of $10,000 with an interest rate of 20% and a minimum repayment of $300 per month. It’ll also cost $4,719 in interest.
If you repaid more, say $470 each month, this about halves the interest paid and time it takes. You’ve also have paid it off and can use these funds for something else.
Anti-budget?
Pay yourself and expenses first, what’s left is yours to use how you want.
Great but do you know the numbers? If you haven't already, start by setting up direct debits from your main bank account (the one your pays goes into) to pay your bills.
But, if you think you’ll raid the account, set up a zero fee, online account and pay yourself an allowance. Your main account pays the bills.
Either way you’ve paid yourself first and have complete oversight of where your money is coming from and going to, in one place.
Account linking
The final step is linking your bank accounts to your online financial plan at Otivo.
Once done, the Expense Tracker graphs what you’re spending money on and where you could save (by that we mean cut back on, like cancel that unloved gym membership).
Achieving financial feng shui is possible. It’s up to you to take the first step.