With the new year comes an opportunity to assess your finances and make improvements.
Like overstretched European governments, we should all be thinking about how we're going to balance the books a bit better this year. A little fiscal rectitude may be in order: spending less, saving more and taking a cautious approach to debt.
It's time to stress-test your finances and consider implementing at least some of the steps in our new year rescue plan.
"Getting out of debt and getting sorted financially are top New Year's resolutions for many people this year," Australian Securities and Investments Commission senior executive leader Delia Rickard says.
She says the first step should be to prepare, or review, your personal budget. That way you'll know exactly where your money is going - whether it's being spent on the things that are important to you or dissipating elsewhere.
You'll also be able to see whether - like some European nations - you're spending more than you can afford.
Action Try out ASIC MoneySmart's new online budget planner at moneysmart.gov.au/tools-and-resources/calculators-and-tools/budget-planner. Also, if you have a smartphone or tablet, check the apps market for budgeting and savings tools.
Having ascertained how much money you're spending on expenses such as mobile phones and dining out, the next step is to consider whether you can reduce some of those costs.
Can you get better deals on services such as your internet connection? Would you be better off in the fresh air than the gym? Would your health insurance cost less with another fund?
Also look at any fees you're paying. Bank fees can be an easy source of savings: walk a block further to use your own bank's ATM and you'll save $2 every time you make a withdrawal.
Action The internet has made shopping around much easier. Use comparison sites such as infochoice.com.au, phonechoice.com.au, gymprices.com.au and privatehealth.gov.au. Be aware, though, that some don't include all offers, only those that come with a commission.
Having freed up some cash, consider applying it to your credit card - almost certainly the most expensive debt on your books. If you have more than one card, direct the extra payments to the card with the highest interest rate first.
Paying extra can have a big impact. Financial products comparison site RateCity says someone who pays only the minimum required monthly repayment (printed on your statement) could find themselves stuck with card debt for decades. A $5000 debt repaid at a minimum rate of just 2 per cent a month would take 29 years and four months to clear - and that's on a low rate of 14 per cent, not the 20 per cent-plus of rewards cards. Bump up the payment to 3 per cent a month and the debt could be cleared in half the time.
Action Try not to use your credit card one day a week, then one week a month, or even one month this year. Use MoneySmart's credit card calculator at moneysmart.gov.au/tools-and-resources/calculators-and-tools/credit-card-calculator to find out how much interest you can save by repaying credit faster.
A credit card is not an emergency fund. Financial advisers suggest you set aside enough real - not imaginary - money to cover at least three to six months of living expenses.
This should be above and beyond any "contingency fund" you have for big expenses such as car repairs. An emergency is losing your job and not finding another straight away - not spotting a great pair of boots in a sale that ends tomorrow.
Action Divert 10 per cent of your pay to a high-interest, no-fee online savings account to build up an emergency fund. Once you have that buffer, continue to save 10 per cent of your pay for medium- to long-term goals such as a house deposit, holidays, investment or boosting your retirement fund.
Also consider paying extra off your mortgage while interest rates are low - you'll be paying more off the capital than you would be if rates were higher. And switch loans if you can find a better deal. Competition is fierce at the moment, with banks and other institutions keen for your business.
Comparing home loans became easier as of January 1, when the federal government mandated that banks must make available a standardised home-loan fact sheet to allow apples-with-apples comparisons. Among the key information that has to be included is the total cost of a particular loan over its life.
Action Check a site such as ratecity.com.au to see how your mortgage rate and fees stack up. Ask potential lenders for the new standardised home loan fact sheet.
Walk the talk
We asked some money experts for their own New Year's resolutions.
The director of Strategy Steps, Louise Biti, says she undertakes a major review of her finances every few years and 2012 is one of those years. She's focusing on cost savings and tax planning. Biti is:
- Setting up a self-managed super fund and rolling her two retail funds into this. She'll review her investment strategy at the same time.
- Salary sacrificing the maximum she can into super this year.
- Reviewing all her insurance, plus shopping around to see if she can make savings.
- Studying phone and internet plans to look for better deals there, too.
- Setting up accounts for medium-term savings goals. She'll deposit savings automatically each month.
- Redoing her will and the nomination of death beneficiary for her super fund.
Delia Rickard of the Australian Securities and Investments Commission admits to enjoying a bit of late-night online shopping but her resolution is to institute a 24-hour cooling-off period.
"If I still want something the next day, then OK," she says.
Rickard worries that the next crisis in credit card over-commitment will come from this quarter. "It's just my gut feeling but I think we're going to find real problems emerge because of the ease of shopping online," she says.
Rickard is also renegotiating pocket money arrangements with her children. "I've discussed with my kids making clear distinctions about what we will buy for them and what we expect them to pay for themselves so they have to go through that process of saving for things they really want," she says.
The chief executive of RateCity, Damian Smith, has a one-word resolution: consolidate. "I had two separate home loans for reasons that made sense a few years ago but don't any more," Smith says. "Consolidating them into one loan will save me hundreds of dollars in annual fees. The same is true for my credit cards. I have an old card that I never use but still pay a modest annual fee that's money down the drain. It will take me an hour or so to do all the paperwork ... but I'll save several hundred dollars."
The head of savings and investments for HSBC Bank Australia, Mike Danby, says he plans to keep his family's finances on track with a bank account that offers higher interest if you deposit and don't withdraw in any given month.
"I use the HSBC Serious Saver account to help me resist the temptation to spend," Danby says. "My wife and I find this a useful tool for saving for family holidays. Every month I don't make a withdrawal from the account I'm rewarded with a great interest rate at the end of the month."
Other banks have similar accounts.