Money resolutions for 2016

Manage your finances better with these basic techniques.

Despite popular expressions telling us to “live every day like it’s your last”, the reality is that looking back, many people probably wish they had prepared more for their financial future.

A recent UK survey asked 1,500 adults of all ages what they would do differently if they could relive their lives. “Save more money” was the most common response, with 35 per cent saying that failing to do so was their biggest regret.

Similarly, in the United States, “not saving enough for retirement” was a more common regret than not doing better with careers and personal relationships, according to American Century’s study of 2,031 workers.

These surveys suggest that for many, a touch more frugality in earlier years would have gone a long way. Perhaps the expression should be changed to “live everyday like it’s your last, but save money and plan for your future in case it isn’t” – doesn’t quite have the same ring to it though.

If you feel like 2016 is the year you get better control of your finances and start saving for your future, here are some money resolutions you can consider to help you get going.

Spend on what gives your life more meaning

Why spend $3,000 on a leather sofa when for that same amount you could have an adventurous holiday? In your dying days, you’d cherish the memories of that holiday more than the memories of sitting on that couch.

Also, certain things should take priority. It’s nice to treat yourself with a flashy car when you can afford it, but things like having enough money to raise a family in a beautiful safe neighbourhood are more important.

Consider a bonus savings account

Albert Einstein once said “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”

If one of the smartest people to have ever walked this planet was spruiking the benefits of saving, perhaps it is something you should do more of!

Although interest rates are currently at a dismal low of 2.5% (as at December 2015), it’s still worthwhile to have some of your spare/emergency cash in an incentive saver account earning some interest instead of none. Providers are offering as much as 3.5% in interest on these bonus savings accounts, which would pay around $350 a year on $10,000 in savings. So simply by keeping your money in a high interest savings account instead of in a 0.01% transaction account, you could be a few hundred dollars richer each year.  You can compare savings accounts here.

Review your banking and insurance policies

Just as you would when shopping around for particular products or services (e.g. electronic devices, furniture, car repairs), you should regularly do a comparison on your banking products and insurance policies to ensure you’re getting the best value.

Canstar compares and rates a range of banking products (e.g. loans, credit cards, bank accounts) and travel insurance policies in New Zealand on your behalf. Have a look:

Compare Credit Cards

Compare Personal Loans

Compare Travel Insurance

Refinance your mortgage

While there is little variation in the interest rates offered by different home loan providers in New Zealand, there is still enough of a difference to have an impact on your bottom line.

The lowest floating interest rate for home loans on the Canstar database is 5.70 per cent while the highest is 5.99 per cent. The table below can give you an indication of how much you could potentially save on your home loan by negotiating down from the highest rate (5.99) down to the lowest (5.70). The figures are based on a home loan over 25 years.

Size of loan Difference in monthly repayment Cumulative difference over 25 years

$300,000

$53

$15,900

$400,000

$71

$21,300

$500,000

$88

$26,400

$600,000

$105

$31,500

As you can see, a difference of just 29 basis points in the rate of your home loan can potentially save you as much as $31,500 (on a $600,000 home loan over 25 years). That could be enough to cover a whole year of retirement!

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