Sunday, 1 July 2012

Happy Financial New Year!

I've decided to stop beating myself up about falling off the frugal wagon. You know what? I didn't actually spend THAT much more than I should have (I think my budget slipped by $20 - $30 a week) and I was still saving as much as I should - one of the many benefits of "paying yourself first".

What I've also realised is that I need to be more realistic in my expectations of my own behaviour. I put a lot of pressure on myself to be perfect, which is an impossible goal. No one's perfect (even Perfect Boyfriend has been known to make the occassional mistake). I'm working full time in a demanding job with a high level of responsibility and stress, I'm studying at a post-graduate level part time, and I'm honouring my commitments to my beloved family. Heck, I'm even slowly building up my fitness again after being ill and injured this past twelve to eighteen months. I'm doing pretty well! So if I'm saving somewhere in the vicinity of 50% of my income, I can forgive myself an infrequent takeaway or coffee.

Moving on.

It's the first day of the new financial year!

What does this mean?

You get to submit your tax return anytime from now onwards... So you'll probably have a refund (yay!), but if you're unlucky or you've left those finances to flounder this year, possibly a bill.

What else? Well, you have a brand new financial year in which you can achieve those financial goals you've been daydreaming about.

When you're setting financial goals, you need to focus on what it's realistic to achieve based on your income and financial commitments. You need to set a date by which you will have achieved this goal. And you need a plan for how you'll get from "this is what I want to do!" to "wow, I did it".

I have two financial goals for this financial year: pay off my student debt, and contribute $13,000 minimum to my savings.

Student debt in Australia is not all that awful. It doesn't even qualify as a "bad debt" according to most people. Why? We used to have free university education, and when the government at the time scrapped that, very real concerns were raised that only the rich would be able to pay for degrees. So the government set up a system whereby it provides interest free loans for the majority of university students, and the repayments are based on a percentage of your income once you're working full time.

Any Americans reading this right now are probably thinking huh? Interest free loans? Yep, I get the impression we're very lucky with this system. Loans are indexed by the rate of inflation (usually 3%) each year, and the repayment scheme is generous. It's taken out of your pay before it even gets to you, just like our tax contributions. I currently earn slightly more than the average income in Australia, and I only pay $250 a fortnight towards my student debt. If you don't earn above a certain amount each year, you don't have to make any repayments at all. Some people never have to pay off their debt, because their degrees lead to low-earning professions.

However, I'd rather not have this debt at all. For a start, while the loan is only increasing at the rate of inflation, that money would look great in my savings account gaining compound interest.

My debt is currently $10,500, so if I keep paying it off automatically, it'll take almost two years at the current contribution rate. Instead, I'm going to save up the $4000 extra I'll need to pay it off, I'll have to ready and waiting by next May so that the payment can be transferred prior to 1 June (indexation date). I'm not making the voluntary payment any earlier than that because I'd like it to gather dust - I mean, 4.5% interest - in my savings account instead of sitting in government coffers, earning someone else that interest. As mentioned, by paying it off in full prior to 1 June my debt won't be raised in line with inflation, so there's no downside to keeping the cash where it'll work harder for me. I don't have a separate plan to save this money - it'll just be included in my normal fortnightly savings each payday.

Speaking of which...

This financial year I'm going to save at least $13,000, which is $500 from each pay. The due date for this figure is June 2013 (i.e. the end of the next financial year). This is realistic with my budget (which I'll be posting about soon). I will achieve this via automatic transfers from my spending account to my savings account each payday. I may even exceed this goal - we'll see! This is my "long term savings", which is only a portion of the total amount I save each fortnight.

Have you set any goals for the financial new year?

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