Money & Life contributors draw on their diverse range of experience to present you with insights and guidance that will help you manage your financial wellbeing, achieve your lifestyle goals and plan for your financial future.
After an incredibly difficult 2020, many of us used the Christmas period as an opportunity to splash out and make up for what we missed out on during the year. But if the urge to say good riddance to 2020 put your finances on shaky ground, here’s how to reset for the year ahead.
After being separated from family and friends for much of the year, many people felt the urge to turn up the dial on their Christmas and holiday celebrations to say goodbye to 2020.
For some, it was finally taking a holiday after a year in various stages of lockdown, for others we chose to shower our friends and family with gifts to show our affection, and with many borders still closed or uncertain, we were forced to send those gifts instead of delivering them in person.
For others we simply felt that after a year of stress and uncertainty, we were entitled to take advantage of the retail sales that abounded and treat ourselves!
Unfortunately, many of us weathered tough financial times over the past year as a result of the pandemic.
A whopping 40 per cent of people surveyed by the Financial Planning Association (FPA) of Australia say they’ve lost some or all of their income due to COVID-19. Of those, 11 per cent are struggling to get by, while 31 per cent have been forced to dip into their savings.
And yet, the urge to reward ourselves for surviving such a difficult year can override our financial common sense. If you over-spent during the holiday period, you might have started 2021 feeling quite stressed.
Certified Financial Planner (CFP(R) Christine Lusher says while everyone has been affected differently by COVID-19, overspending at Christmas can compound pressures many of us have been under.
“No one likes a hangover and starting 2021 with a debt from last year’s overspending won’t feel great,” she says.
“Poorly managed personal debt can lead to increased levels of stress, which can lead to sleep problems, mental health concerns and a decline in overall physical health. Having your debts under control will provide you confidence and the peace of mind that part of your financial life is in order.”
When we have large debts hanging over us, we might feel motivated to develop a ruthless repayment plan, assigning ourselves a strict budget in order to clear the debt as soon as possible.
However, this approach can actually set you up to fall short. If you try to cut your expenses to the bare bone and slip up because you haven’t left yourself any wiggle room, you may feel like you have failed and become discouraged.
A better approach can be to be a bit more conservative in your plans to repay any debt – while still aiming to meet or exceed the minimum repayment requirements, and always by the deadline to avoid additional charges.
If you come in below budget at the end of the month, you will feel a sense of accomplishment and be able to siphon additional payments to service your debt, which can give you more motivation to continue.
Prevention is better than cure
Once your debt is paid off and the financial hangover has cleared, consider planning for the year ahead.
Use your 2020 holiday spending as a guide to what your expenditure might be in 2021.
“This way you can work towards saving extra during 2021, so you are cashed-up and ready to go next Christmas. Include your Christmas savings needs as a line in your budget”, says Christine.
If you don’t have a budget, now is the perfect time to create one!
If you’ve taken a hit this year and Christmas spending got out of hand, or you just want to put yourself on track to financial freedom in the new year, consider getting professional financial advice.
Job insecurity, depleted savings and loss of super were the three most common financial worries for Australians in 2020. Yet FPA research shows that people who were already working with a financial planner were less affected by the economic downturn, and wouldn’t have done anything differently.