The financial year is almost over. Which, of course, means that the new financial year is about to start. This makes right now a great time to develop some better financial habits, so that your finances are fully charged come June 30 next year.
Many clients (and some financial advisers we know!) spend the month of June frantically arranging things for the end of the financial year. This includes things like scrounging around at the back of the couch looking for some extra dollars to make a personal, tax-deductible super contribution. We wrote about the wisdom of these contributions a few weeks ago.
C’mon guys: it’s 2022. We do not need to scrounge anymore! This is the age of the automatic payment. And the start of a new financial year is a great time to set up a few of these payments.
Let’s say your scrounging helped you find $5,000 to put into super this year. You decide therefore to aim for an extra $6,000 into super as a tax-deductible personal contribution in the 2022/2023 year. Well, you could wait until June 29 2023 and try to find the money then. Or, you could set up a system whereby $500 is automatically paid into your super fund on the 3rd day of each month. By June 3 2023, $6,000 will have made it’s way into the super fund in a wonderfully calm and regular manner.
To make a system like this work, all you need to do is make sure that you have $500 in your account on transfer day. For that reason, many people set up these payments to happen a day or two after they get paid themselves. Get paid on Thursday, make an extra contribution on Friday and go shopping on Saturday.
If you have your own super fund, then the payment can be as easy as a bank transfer from your personal account to your super fund’s. If you use a retail or industry fund, they can usually receive direct payments and they will be very keen to show you how. If you want to claim a tax deduction for the contributions, there is a little bit of paperwork, but we can help you with this.
If your fund is set up with a specific investment strategy that includes investing in a volatile market like the share market, then making smaller regular payments will often be a good investing device as well – you will spread out the times when you do your buying, which usually can reduces the impact of big swings in price.
Super contributions are not the only useful automatic payment. Another great one is to automatically pay off your credit card in full each month. This ensures that you (i) only ever spend what you can afford using the card; and (ii) that you never pay interest (assuming you do not do something else that would incur an immediate interest charge, such as taking cash out against the card). Credit card interest is bad interest. Automatic payments help you avoid it.
People with mortgages usually have their repayments set up to be made automatically. If you want to pay out the loan a little quicker, you can easily either adjust this existing payment to add a little each fortnight or month, or create a new payment for the smaller amount. Remember, you can always cancel one or more future payments if you have some other unexpected bills from time to time.
A similar thing can be done for rent payments. Set up an automatic payment a few days before the rent is due each month. In fact, there is nothing to prevent you from paying the rent very early – which can be helpful if you get paid on the first day of the month and your rent is due on the 20th. You simply set up the payment for the day after you get paid and voila, your rent is always taken care of.
You can see the theme here – anything that you might forget to pay, or that needs to be budgeted for, is a potential winner in the automatic payment stakes. So, if there are bills or investments that you sometimes find it hard to make, come and talk to us about them. We can show you how to make the most of automatic payment technology. And help you make sure that the next financial year is sorted almost before it begins.