5 steps to help reduce financial stress in the new year!

Cost of living pressures have piled on and Australians can’t be blamed for entering the new year with a little bit of apprehension. While inflation appears to be ticking down and the pace of interest rate hikes has slowed, there’s still lots to be uncertain about.

If you’re worried about your finances or just want to improve your financial position in 2025, here are a few steps you can take that might help.

Be proactive with your mortgage

The Reserve Bank’s campaign to quash inflation has been felt by many mortgage holders, with interest rates rising by a staggering 4.25% since May 2022. But the good news is there are things you might be able to do to help ease the burden:

• Research the market to get a sense of what other lenders are offering. By doing so, you can see how your existing arrangement stacks up and potentially find one that’s more suitable to your lifestyle.
• Consider an offset account (if you don’t already have one). Offset accounts function much like regular savings accounts, but instead of earning interest on your balance you save an equivalent amount on your mortgage. And unlike a savings account, that interest saved won’t attract any tax.

Be more thoughtful with your discretionary spending

Spend-now-pay-later services, credit cards, and shopping websites boasting same day delivery have made it easier than ever to send money. And for those of us trying to prioritise financial wellness in the new year, the ability to quickly satisfy every impulse to spend can be one of our biggest obstacles. To help rein in these tendencies, consider:

• Reducing or avoiding credit card use and buy-now-pay-later services.
• Wait 24 hours before any extravagant purchases. If you still want to purchase an item after a day’s deliberation, that might be a sign it’s worth the hit to your budget (but instead of purchasing it on credit, consider saving up for it).

Plan ahead to minimise surprises

Think about potential risks and take steps to minimise their impact on your budget. This can take many forms including:

• Having a well-stocked emergency fund
• Ensuring your investment portfolio is sufficiently diversified
• Taking out personal insurance (if you don’t have any already)

Understand your cash flow

Having a cash flow strategy will differ from keeping a budget. The aim is to have a clear idea of where your money is going so any uncertainty and surprises are kept to a minimum.

Start by calculating the percentage of your income that goes towards meeting your expenses each month; don’t forget to factor in those once-a-year expenses, for example, the yearly car costs or yearly subscriptions.

Visualising the flow of your money can also help you identify areas where you can afford to be more frugal. Small changes like cancelling unused or excessive memberships can make a big difference over time, and you might choose to channel any cash you save towards your investment portfolio or paying down debt.

Find ways to increase your income

There are only so many ways you can reduce your spending, and chances are there are things that cost money that you don’t want to cut out of your life. To help take some of the pressure off your budget, it might be worth looking for ways to increase your income. Some things you might be able to do include:

• Renting out a spare room in your home
• Selling items you no longer need
• Negotiating a salary increase
• Looking for a higher paying job
• Taking on a side gig

As we navigate the complexities of the current economic landscape, it’s essential to take proactive steps toward financial stability. By assessing your budget, exploring options for savings, and seeking professional advice if needed, you can empower yourself to face the challenges ahead with confidence. Remember, even small changes can lead to significant improvements over time. With careful planning and a focus on your financial goals, you can turn apprehension into opportunity as you move into 2025.