1. Your window to financial fitness - Morningstar.com.au http://www.morningstar.com.au/learn/article/your-window-to-financial-...
Your window to financial fitness
Jeffrey Hutton | 13 Jan 2012
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Jeffrey Hutton is a Morningstar contributor.
Last month, Geoff Missen, chief executive officer of MBA Partnership on the Gold Coast, took on a new client.
She is a recent graduate of medical school. Among her aims is paying off her credit card debt - all $50,000 of
it that is spread across nine cards.
Missen drew up a budget that would see her finally repaying the last of the debt in over two years.
"As a doctor she thought she would be making good money and could afford to pay it off," Missen says.
"That money could be put to better use. Now she is going to struggle to get debt free."
Missen's experience underlines an apathy among some when it comes to financial planning and even goes
some way to belie notions that Australian consumers are being more careful with their money, stashing up
cash piles, and paying down debt should the world economy suffer another serious shock.
That's a pity, say financial planners, because lower interest rates and lower limits on superannuation
contributions means that 2012 provides a golden opportunity to make consumers financially fit.
"With interest rates coming down it will be easier for mums and dads to meet their monthly obligations," says
Viviane Parsons, senior financial planning manager with NAB Financial Planners.
All financial planners stress the importance of setting a budget. And just as important is being rid of
high-interest, unsecured debt like credit cards and other consumer finance, Parson says.
"Being aware of what your outgoings are is very important. If you have savings and you have debt it's better
to put it towards your debt. You're only going to be getting a lower rate of interest on your savings and higher
interest on your debt," Parsons says.
"I come across that quite often. People have $5000 or $10,000 in savings and outstanding credit card debt.
That money would be better used against the credit card debt."
But talk always comes back to budgets.
"Spend less than you earn," says Gavin Latz, director of financial planning at CBC Financial Advisers in
Sydney.
"It's about cashflow management."
Latz says setting a budget isn't something you do once on a rainy day at the kitchen table. Monitoring
spending over a period of time, say, a week, will provide an accurate snapshot of spending habits.
Give yourself a cash allowance of about 10 per cent of income, set aside money for fixed costs such as your
phone, mortgage or rent and other bills, and then use a credit card to monitor the rest of your spending.
"If you can measure it you can manage it," Latz says.
Parsons recommends getting financial advice, especially for anyone over 50, to help ensure they can
maximise their contributions into superannuation at the concessional rate of 15 per cent, without going over
the cap. The allowance disappears from 1 July.
But are consumers saving more and spending less? Financial planners wonder if this is the case. While
retailers are being hurt by slumping sales and overseas competition, credit card bills are still on the rise. After
dropping every month since June, the latest figures show credit card balances jumped in November.
Australians owe a record $50 billion on their charge cards, according to the Reserve Bank of Australia (RBA).
Household savings have been tracking at about 10 per cent or more of income since December 2008,
according to the RBA. Financial planners account for that by some households selling out of shares and
property to build up cash piles that will see them through the global financial crisis.
"Cash is building up because of uncertainty and nervousness around sharemarkets, but that will change when
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