Cara Brett, Author at LH AGENDA

Failure and financial setbacks happen. Nobody is that blessed to go through life without experiencing some form of obstacle along the way. It’s what makes us stronger, and, if we learn from the experience, then we can come out on top.

To get yourself through this time, there are certain things you should be doing to get back on track sooner rather than later. Here are 4 tips to help you bounce back from financial setbacks:

1. Accept your situation

Before you can make a comeback, you need to understand where you are, and, ultimately, how you got there. Don’t wallow and don’t ignore the problem – that isn’t going to help you. However, understanding how you got there is the first step. Assess your situation, and what you have been doing to get you to this point. Is it something that you can physically eliminate such as a credit card, or is it an outside influence? Write it all down. Once you have assessed your situation and figured out where you went wrong, forgive yourself and don’t live in the past. Yes, you may have made some mistakes along the way, but it’s the actions you take from here on in that you can control now.

2. Revise your goals

Do you have a big debt that needs paying down? All of your old goals (like a holiday in the Maldives) must now be pushed to the side for the moment to ensure your recovery is swift and as pain free as possible. If you’re struggling with this part, hash it out with someone you trust. An outside perspective can often shine new light on a situation that you can’t see your way out of. Setting new goals and then making a plan to achieve them is what will set you on the right path.

Once you have assessed your situation and figured out where you went wrong, forgive yourself and don’t live in the past

3. Cut back, just for a while

Now that you know your short term goals, you need to look at your expenses, and figure out what is actually mandatory and what isn’t. Housing, food, and electricity are all necessities but maybe the daily coffee, expensive car lease and designer outfits are not. I think it’s important in your budget to have some money for the extras that you enjoy but in the short term, you may need to go without. Don’t think of it as a life sentence, just think of it as a short period while you get yourself sorted out. You may need to be brutal with yourself but it’s for a pre-defined period, so there is light at the end of the tunnel.

4. Build and use your support system

Get buy-in from close friends or family. Much like starting an exercise regime, having a support system that can call you out when you are about to make past mistakes again, is invaluable. As an added benefit, if they know what you are going through then you won’t feel as much pressure to keep up with the Joneses.

The road to recovery doesn’t have to be long, but the only way to get through itis to self-evaluate and set out a realistic plan of action. If you knuckle down in the short term, you’ll be back planning your holiday to the Maldives in no time.

Cara Brett

Cara Brett is the Director and Senior Financial Adviser at Bounce Financial. Having worked in the financial services industry since 2003, she saw an opportunity to work with the young professionals and the movers and shakers in Brisbane, and so Bounce was born.

How you manage your finances should be one of the most important things you do. In most circumstances, failing to have a budget is the top mistake people make with their finances. If you don’t have any form of budget then you likely have absolutely no idea what shape your finances are in.

The good news is that there is no set method for budgeting. Everyone has different financial situations and priorities. There is no such thing as a one size fits all approach, so you can comfortably find the best system for you, and as long as it is realistic for your situation, then all the better.

When assessing people’s finances however, I see some common themes. Having a budget is one thing, but if you are making some other mistakes along the way, all the budgeting in the world is not going to get you where you need to go.

Here are the top 5 mistakes people make with their finances:

1. You are paying your bills late

As of March 2014, the credit rating system was changed to incorporate late bill payments. Previously if you paid a utility bill a few days late, it was no biggie, but now it could have a negative impact on your credit score. Couple that with the fact that if you pay a bill late, you usually incur late fees. If you pay your bills on time, you’ll be able to pay the lower amount and won’t have to worry about your credit rating next time you try and get a loan.

2. You underestimate your yearly expenses

When it comes to budgets, you need to include everything in there. Most people underestimate what they actually need to pay for during the year. Don’t just put aside money for ‘bills’. Work out each of your bills for the year, and make sure the money you set aside is enough to cover them all. If you don’t set aside the right amount of money, you will end up blowing your budget at some point down the track anyway, so be realistic when establishing your budget.

3. You don’t give yourself spending money

It is important, when managing your finances to give yourself some ‘play’ money. Too often I see people creating very strict budgets for themselves, and falling off the bandwagon 2 weeks in. Incorporating a set amount of spending money each week will keep your sanity in check. You can allocate an amount of money to go towards the fun stuff, like dinners, coffees, the movies etc. You don’t have to feel guilty about it, because if your budget is set up correctly, the rest of your expenses should be covered.

4. You live off your credit card

Credit cards can be a great transactional tool, if you can be trusted with them. If however you have a problem with spending too much each month, then you should consider getting rid of the credit card and getting yourself a debit card instead. This will ensure that you can’t overspend each month and will help to keep you on track.

5. You don’t have any emergency cash

Budgeting your yearly expenses is one thing, but you never know what life is going to throw at you that could completely blow the budget. In the last year alone, I have had to pay an excess on insurance for the crazy storms in Brisbane, and my George Foreman grill broke and needed replacing. How could you anticipate or plan for these expenses? You can’t, but you can set aside some emergency money specifically for these type of things. In our household we keep $2,000 aside to pay for these unexpected nasties, but depending on your personal situation, this amount could be different.

Budgeting and money management is more than just writing down your expenses on the back of an envelope. With the above tips, you will be able to take your budget from ok, to actually working for you over the long term.

Image via Pixabay under Creative Commons CC0

Cara Brett

The concept of good debt verses bad debt has come up a lot lately. Most people seem confused by the idea. Isn’t all debt bad?

Debt is debt. It means you owe someone (usually a bank or alike) some money. At some stage in the future you are going to need to pay it all back, so whether the debt is considered ‘good’ or ‘bad’ doesn’t really matter when it comes to whether you owe someone or not.

So, what is the difference?

Good debt is usually considered debt that you can get a tax deduction for.

You can usually claim a tax deduction on any debt you’ve acquired for the purpose of making money. Now there are couple of things to note with this: firstly, the tax deduction that you receive is only on the interest that you pay on the loan and some of the lending expenses, not the principal. So, if you have an investment property, you are able to claim a tax deduction on the interest portion of the repayments only.

You can usually claim a tax deduction on any debt you’ve acquired for the purpose of making money

Now, remember, a tax deduction doesn’t mean you get the whole lump sum back (that is a tax offset), a deduction means that it reduces the amount of income that you earned (on paper) through the year, so when they calculate the tax you need to pay, it is based on a lower income. The benefit of that, is that you end up paying less tax to the tax man.

Examples of ‘good debt’ are business loans, investment loans, car loans that fund a car for your business, and anything that is in place for the purpose of making a profit.

Bad debt is just your regular every day debt. I am talking home loans for the house that you live in, credit cards, personal loans, and personal car loans. You cannot claim any tax deductions on these, because they are for personal use and not for the purpose of making money.

Why do you need to know the distinction?

Like I said, a debt is a debt, you are still going to need to pay it back at some stage. If however you have a good debt (tax deductable debt) and a bad debt (your home loan), then you are better off paying the ‘bad debt’ off the quickest. Whatever excess cash you have should be thrown into your home loan to pay that down quicker.

The right strategy for you will depend on your personal financial situation, but knowing the distinction between the two is a good place to start.

Featured image via Pixabay under Creative Commons CC0

Cara Brett