“I've recently received a promotion at work, and I'm keen to use the extra income wisely. How can I set realistic financial goals that align with my long-term aspirations, and what tools or methods can I use to track my progress effectively?"
-Question from Emma in Ballarat, Victoria
Top answer provided by:
Olivia Glare
Hello Emma, how lovely that you have received a promotion. Years of a wonderful work ethic has paid off for you and honestly, it’s well deserved. I also would like to mention how great it is to see you reaching out to educate yourself on the best ways to utilise this money and that you're eager to make the most of the extra income and to set yourself up for financial independence.
To start off this new journey, find a breezy hammock to lay in and reflect deeply on your financial goals, aligning them with your aspirations. Ideally these goals would have short, medium, and long-term timeframes.
Firstly, cozy up with your thoughts. What dreams do you hold close when it comes to your finances? What are those heartfelt goals you're aiming for? To help you begin these internal conversations, here are some of my personal thought starters:
Do you dream of owning a home, traveling the world, starting your own business, retiring comfortably, reducing the amount of tax you pay, starting a direct share portfolio, contributing extra into superannuation, or creating cash buffers for unexpected emergencies? Identifying these aspirations will provide you with clear direction and purpose when setting your financial goals.
Once you have a clear vision, break these goals down into bite-sized and achievable milestones. Ideally these goals should be specific, measurable, achievable, relevant, and time-bound (SMART), or in other words your financial goal would have a deadline and be achievable based on your new personal income.
As an example, if you want to retire comfortably and pay less tax, consider putting extra money into your super through salary sacrificing, otherwise known as concessional contributions. Money going into your super is taxed at just 15%, much lower than your marginal tax rate. The government recently raised the limit for these contributions from $27,500pa to $30,000pa which come into effect on 01.07.2024. These extra contributions are also part of what your employer pays into your super known as super guarantee payments. Thanks to the compounding effect, adding more to your super can significantly boost your retirement savings. I suggest checking out the Super Guru website established by the Association of Superannuation Funds Australia (ASFA). There, you'll find plenty of educational resources, as well as useful tools and calculators that demonstrate the long-term impact of small adjustments to your super contributions.
Another marvelous option to consider for your extra income is accelerating the repayment of your home loan. By channeling these additional funds towards your mortgage, you can make extra repayments, leading to a substantial reduction in the time needed to clear your loan and yielding significant savings in interest. It's a smart move that can bring you closer to financial freedom.
For example, let's consider a scenario: If you have a $500,000 mortgage with a 6% interest rate over 25 years, you'll end up paying approximately $460,000 in interest. However, if you increase your weekly repayments from $745 to $800, you can pay off your loan in just under 22 years and save $60,000 in interest. Now that’s money ready to fuel your travel adventures. To assist with achieving this type of goal, I suggest you go on the Government’s Money Smart website and utilise their tools and calculators or their information on paying off your mortgage faster.
Once your goals have been set in stone, it's time to infuse a bit of magic into your routine. Make it a monthly moon ritual to check in on your progress, tweak your goals if needed, and sprinkle some celebration along the way for every milestone you reach. Keep in mind, financial goal setting isn't about achieving perfection but embracing the journey of progress and constant refinement.
Emma, don’t hesitate to seek guidance from financial professionals or mentors who can provide valuable advice and support. Whether it's a financial adviser or a trusted friend or family member, having someone to bounce ideas off and hold you accountable can be incredibly beneficial.
As you embrace the blessings of increased income, find the balance between indulging in the present and nurturing your dreams for the future. Take gentle steps, honouring your spending habits while cherishing your aspirations. Wishing you all the best towards your path of financial independence.
While the Adviser Ratings Website facilitates the question and answer functionality, all such communications are between users and authorised financial advisers, of which Adviser Ratings has no affiliation. Adviser Ratings is not the advice provider and does not provide financial product advice and only provides information that is general in nature.
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