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Control the controllable: 6 ways you can create financial certainty in 2021

For most of us, 2021 has brought on a breath of fresh air. After a hard 2020, it has been great to turn the page and start new. But the new year doesn’t mean that the pandemic has magically disappeared.

The reality is that things remain uncertain and we don’t quite know what this year will bring for us. The economy is looking healthy, yet house prices continue to rise. Only recently we had cases of community transmission. The Covid-19 vaccine might bring hope, but for the time being, our borders remain shut.

So what should we do when faced with even more uncertainty? The best way forward is to control the controllable. However unclear things might be, there are always steps we can take to create our own financial certainty. Here are 6 tips to get you started.

1. Get your house in order

It’s hard to feel financially secure when you don’t know what money is coming in and what is coming out. The first thing to do is to understand your expenses, not only what you are spending but what’s an essential expense and what’s not.

Always, always, always spend less than you earn. This is the #1 rule – if you can’t stick to this one, then none of the other tips will help you. Earning more, by itself, won’t help you if your spending is out of control. Case in point: Mike Tyson declared bankruptcy in 2003, despite having earned US$400 million over his career.

2. Have an emergency fund

If you don’t have an emergency fund, you’re not alone. Data published by the Reserve Bank in 2020 shows that New Zealanders saved 0.4%.

When putting together a financial plan for our clients, looking at all the pieces of their financial health puzzle, we recommend that they have an emergency fund consisting of 3 months’ worth of expenses. The emergency fund needs to be easily accessible. That doesn’t necessarily mean that you need to have cash sitting in the bank, it could be money that you can re-draw from your mortgage or your investment. Have a look at this article to help you get started.

3. Make the most of your mortgage

Mortgage interest rates are at an all-time low. Are you making the most of them? This could mean evaluating your loan and possibly re-negotiating fixed rates. Or being aware of when your fixed rates expire so you can be sure to lock in a new low rate, without going into a higher floating rate.

If you work with a mortgage adviser, they can do all the leg work for you and help you make good decisions. You can look at increasing your repayments to pay off your mortgage sooner.

4. Sort out your dumb debt

It is called dumb debt for a reason – this is when you are paying a very high-interest rate that can be avoided. Some of the most common high-interest rate debts are credit cards, hire purchase, and personal loans. Dumb debt makes people worse off financially and the longer they take to pay it off - an important point sometimes lost on people - the more it'll cost.

If this is you, make a plan to pay your highest interest debt first. Can you consolidate some of that debt with your mortgage and pay a much smaller interest rate? This can be a great tool as long as you make a plan to keep your repayment and not stretch your debt to the 30-odd years left in your mortgage.

5. Don’t pay for insurance you don’t need

The main reason to review your personal insurance regularly is to make sure your financial risks are properly covered and that you are not paying for things you don’t need or want. Insurance shouldn’t be a case of set and forget, it needs to keep up with your life.

Having the right insurance, at the right time can save you lots of money when you encounter a bump in the road.

Your insurance needs to work in line with all the other pieces of your financial health puzzle.

  • Are you paying smoker rates on your insurance but have been a non-smoker for more than 12 months? You could be dramatically reducing your premium by letting the insurance company know.
  • Have you paid off most of your mortgage? Maybe you don’t need as much life insurance and you should be focusing on retirement planning.


6. Get a financial personal trainer

For the same reason you work with a personal trainer to get fit, you should work with a financial adviser to achieve financial certainty. At Apex, we look at your financial health from different angles and make sure all the pieces of the puzzle fit together. By asking the right questions, your adviser will help you to understand your financial weaknesses and offer solutions that fit in with your life.

If your year hasn’t quite kicked into high gear yet, take this time to look at your financial health and create your own financial certainty – so that you are prepared for whatever 2021 might throw your way.



 

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