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If your usual Christmas travel plans have been put on hold by COVID-19, don't despair. Your holiday savings could turn out to be a cash bonanza for your finances.
COVID-19 has played havoc with our love of travel, forcing many to shelve their annual summer holiday for another year. But while you still can’t take that overseas trip you’ve been craving, there are plenty of ways to put your funds to good use instead.
Here are five things you can do with your holiday savings now, that could help you reach your financial goals sooner. Done right, you could end up with more money for that dream holiday, when global borders finally do open.
1. Pay down debt
Eliminating personal debt is the number one priority when it comes to building long-term financial prosperity and stability.
“It can be extremely hard to get ahead with large amounts of personal debt, so this is a great opportunity to pay it off and move forward,” says Certified Financial Planner (CFP(R)) professional, Christine Lusher.
Carrying personal debts like credit cards, personal loans and store loans can hold you back for years, making you even more vulnerable when an economic or health crisis like COVID-19 hits.
By paying down debt you’ll improve your overall cash-flow position, meaning more money for travelling when the time comes.
“The bonus here is you will have more cash ongoing, as you’re not paying all that interest, so potentially more holidays in the future,” Ms Lusher says.
2. Start an emergency fund
If you don’t have one already, take some of your holiday savings and start an emergency fund. An emergency fund allows you to weather any unexpected loss of income, putting you on a much more secure financial footing. Aim to save up at least three-months’ worth of living expenses to help support you in case of an unexpected loss of income.
3. Pay off your mortgage sooner
If you have a mortgage, use some of your holiday savings to make extra repayments and pay off your home loan sooner. Both lump sums and regular contributions over and above your minimum repayment can be effective. Extra repayments help reduce the principal you owe, meaning you pay less interest over the life of the loan.
Investing in your home can add value and help improve resale down the road. So if a home makeover is on the cards, why not put those unused holiday funds to work?
“For anyone who owns their own home, this may be a great time to use their holiday funds and bring forward some home renovations they had planned for the future,” Ms Lusher says.
As part of its COVID-19 relief package, the federal government is offering eligible homeowners grants of up to $25,000 to substantially renovate an existing home. Income caps and minimum spends do apply. You’ll need to get in quickly, as contracts need to be lodged by 31 December 2020. Find out more here.
5. Top up your super
Boosting your retirement savings is always a smart choice when it comes to reaching your financial goals.
“With concessional taxation treatment and invested appropriately, compared to holding your holiday funds in a bank account, superannuation makes a strong case for consideration,” Ms Lusher says.
Ms Lusher says the carry-forward rules introduced in 2018/19 offer further financial incentives for anyone thinking of making extra super contributions.
It’s a bit complicated, but essentially, carry-forward rules allow you to ‘carry-forward’ the unused portion of your annual concessional contribution cap ($25,000) for up to five-years. That means you may be able to make extra super contributions at the concessional tax rate.
There are rules around eligibility, and, you’ll need to lodge the right forms with your super fund. So seek advice from your financial planner or accountant before making extra contributions.
Putting your holiday savings to work for you can help you reach your financial goals sooner, so don’t delay.
If you’d like more strategies to help you on the path to financial freedom, why not speak to a CERTIFIED FINANCIAL PLANNER® professional? Find the best match for you by using our Match My Planner tool.