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  • Writer's pictureThe Economist

Stressed? You're not alone. 3 steps to conquer money stress

What's the biggest cause of stress in your life? New research has found "my job" is the #1 answer for both men and women. The next biggest anxiety producers are health and money.

New figures show more than 85% of us are stressed about our finances, and 60% are stressed about both our money and our health.

The major triggers for that stress are life events, led by divorce, followed by when children leave the nest—and move back in.

We believe following a few key financial steps can have a huge impact on reducing the financial stress these events can cause and even improving your health.

So what can you do to help improve your financial security and overall wellbeing?

Here's our 3 steps to conquer money stress.

1. Build an emergency fund of at least 3 months' of expenses so you can weather the unexpected

We all know, that in everyday life, stuff happens. Whether it’s for an unexpected loss of a job, bill shock, car accident or medical emergency, having a financial buffer in place is becoming more important than ever.

But how much do you need, exactly?

We recommend starting out by doing a detailed budget – if you haven’t done one, now is as good a time as any – to calculate all of your expenses. Then, multiply that by three or if possible six or even 12 months’ worth. As a good rule of thumb though - 3 months worth is a great place to start.

If that’s not possible right away, you should try to put away a bare minimum. It’s crucial to set a realistic target so it doesn’t seem overwhelming – and to get started as soon as possible. Having something in your emergency fund, even a few hundred dollars, is better than nothing.

But when should you actually use your emergency fund?

Keep your emergency fund for expenses you need to pay quickly when other money isn’t available. If it can wait, save up for a few weeks and pay it from this saved money instead.”

If you don’t have an emergency fund, here are some tips to get started:

  • Setting up a separate savings account is a good idea as it will discourage you from dipping into the fund. If you have a mortgage, you should use an offset account – which reduces the amount of interest you pay on your home loan – as your emergency fund to get more bang for your buck.

  • A great way to start to save for your buffer quickly is to lodge your next tax return and pop the entire refund away towards it.

  • Be ruthless, slashing unnecessary spending – your wants, as opposed to your needs. Look for ways to cut down on nice-to-haves like eating out or buying that extra pair of shoes.

  • Put savings on autopilot. Set up regular withdrawals from your pay to a separate rainy-day fund until you reach your goal.

  • Explore a side gig to supplement your income.

Tip: Save a little bit each week or month until you reach that 3-month target and then you'll feel better about the unexpected.

2. Add a little more of your income to your super fund each year so you're more prepared for retirement

Taking care of your future self is as important as making time for yourself today. It can give you peace of mind too.

To be confident you'll have enough money to maintain your lifestyle in retirement, experts recommend aiming to save 15% each year—but that includes any contributions from your employer. Considering your employer must pay at least 9.5% of your 'ordinary time earnings' into your super account, if you can top this up by an additional 4 or 5% you'll be doing your future self a huge favour.

Now, if you can afford it, making extra contributions isn't only a great way to boost your retirement savings, it can also reduce your tax. If you're on a low income, you may also be eligible for extra contributions from the government.

There's a couple of ways to add to super.

1. You can ask your employer to pay part of your pre-tax pay into your super account. This is known as a salary sacrifice or salary packaging.

These payments, called concessional contributions, are taxed at 15%. For most people, this will be lower than their marginal tax rate. You benefit because you pay less tax while you boost your retirement savings.

Generally, making extra concessional contributions is tax effective if you earn more than $37,000 per year. There's a limit to how much extra you can contribute. The combined total of your employer and salary sacrificed contributions must not be more than $25,000 per financial year.

2. You can also make contributions to your super from your after-tax pay.

These payments are called non-concessional contributions because you have already paid tax on the money. You can make up to $100,000 in non-concessional contributions each financial year.

3. Have a financial plan

Planning for life's goals—a new house, a holiday, your retirement—is likely on your to-do list. But have you taken the first step?

According to a 2016 study by the Financial Planning Association of Australia (FPA) into the financial habits of Australians, we are optimistic that we are able to carve out the life we want. However we also have financial regrets—namely that we have not saved (47% of Australians) and invested (27%) as much as we thought we should have.

Interestingly, 63% of us have not mapped out our financial future at all or have loose plans. A quarter of us (25%) never seek advice from others when making financial decisions.

Still don't think you need a plan?

Well, think again.

It's so important that we understand the fundamentals of managing our money. By taking a few positive steps and having these 3 essential financial elements in place, you can make your money work for you—as hard as you work for your money.

So take the first step toward a financially stress-free life by beginning your plan.

If you're a do-it-yourself type, a good place to start is by setting some goals and strategies on how you're going to get there.

If you prefer to work with a professional, get in touch for a chat. We can help.


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