A NEW Year provides the incentive to sweep a new broom through many areas of our lives, and there's no better place to start than with your household finances.
Kick off a personal money makeover by listing your assets - things of value you own like your house, savings and investments. Then compare this to your liabilities - your mortgage, personal loan, car loan and credit card debt.
If your assets are worth substantially more than your liabilities give yourself a pat on the back, you're on the way to achieving financial security. But if your liabilities are close to, or overtaking your assets it's time to get serious about bringing debt under control.
Your home loan is likely to be your biggest debt, and while it's backed by a property that should grow in value over the long term, it's still important to look at ways to cut the cost.
You can save substantial amounts of interest by shopping around for the most competitive home loan, and switching to it - but do check what switching fees might apply first. Some of the best rates at present include UBank (6.14% for refinancers), eMoney (6.33%) or MyRate (6.35%).
Next, take a look at your credit card balance. Despite two cuts to official interest rates late last year, card rates remain very high, averaging 19% on premium/gold cards or about 15% for standard cards. At this level, even a small card balance could generate a substantial annual interest bill.
There are more than 100 different balance transfer offers available, each charging very low rates for limited periods. However I reckon simply knuckling down to pay more off your card each month is a far easier, and potentially more effective solution.
Making a commitment to pay an extra $20, $50 or $100 off your card each month will see you clear your card balance ahead of schedule, with big savings on interest in the process. Avoid taking on fresh debt by leaving your credit card at home and using a debit card when you go shopping.
If you're concerned about rising living costs in 2012, it's worth embarking on a savings plan. Having a pool of spare cash makes it far easier to meet regular bills or even emergency expenses when they arise.
Setting up a regular automatic transfer from your everyday account into a high interest savings account makes it easy to stick with a savings goal. Find the extra cash by drawing up a household spending budget, or keep a spending diary for a week to see exactly where your money is going and where you can cut back.
Next, give your personal insurances a thorough check. It's important that your most valuable assets like your home, its contents and your car are adequately protected by a competitively priced policy. If you have undertaken any home improvements in 2011, update the insured value of your home. It should involve only a small increase in the annual premium.
Finally, take the time to work out a couple of few simple goals for 2012. Something as easy as setting up a savings account for the kids or hunting down any lost super can make a big difference to your family's financial wellbeing over the coming year and beyond.
Paul Clitheroe is a founding director of financial planning firm ipac, chairman of the Australian Government Financial Literacy Board and chief commentator for Money magazine. For more information visit www.paulsmoney.com.au
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