Check your financial pulse

Tim and Victoria Broady with Jack
Tim and Victoria Broady with Jack

If your finances are a blur and you experience constant pain in your hip pocket, then it's not a health check you need but a wealth check.

By checking your financial pulse on a regular basis, it is easier to detect those financial habits that drain wealth and put in place measures to boost long-term wealth and happiness. But first you have to know what to look for.

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Money has gone in search of the numbers that count most towards your financial well-being, beginning with some simple questions.

What do you spend in a year?

Most people can quote their income to the dollar, but how many know their outgoings?

"It's amazing how many people say 'I'm earning $70,000 and spending $60,000 a year, so where is the other $10,000?'," says financial planner, Laura Menschik of WLM Financial.

The only way to find out is to track your spending and work out a budget. Menschik suggests starting with credit card and bank statements to see what you actually spend, rather than what you think you spend.

Once you do this you can identify areas where you can cut back. "Do the numbers on how much you can put aside each pay day and discipline yourself to put away that $100 or so a fortnight, so you can say that's where my savings are", says Menschik.

What about emergencies?

Everyone needs a cash stash for times when the washing machine dies, your credit cards are maxed out and it's still a week until pay day.

Yet ME Bank's latest Household Financial Comfort Report revealed more than half of us are unable to save a cent while one third have less than $1000 cash on hand. Not surprisingly, we are not comfortable with that.

ME Bank chief marketing officer, Rebecca James says any amount of savings is good, but the standard rule is to set aside three months' salary for emergencies.

If you have a mortgage with an offset account or redraw facility then you can park savings there and reduce repayments on your loan at the same time. "Because interest rates are so low, it's financially savvy to save that way", says James.

But if it's too tempting to dip into an offset account, it may be worth quarantining cash in an online savings account and shifting longer-term savings into a term deposit where it is locked away.

How much is in the bank?

In the old days you could open your wallet and see exactly how much money you had. But in these days of digital wallets and plastic cards, it can be difficult to keep track of your hard-earned.

Menschik suggests checking your accounts at least once a week to see what you've got. This is also a good way to monitor spending patterns to identify potential savings and to make sure you haven't been over-charged or the victim of fraud.

What are you worth?

We all know you are priceless, but what about your financial assets? This information will help you work out how much money you could raise by selling assets in an emergency.

If you own property, it also pays to know its current market value. Once you build up equity in your home that can be used to create more wealth, by borrowing against it to invest or start a business.

What is your interest rate?

Buying a home is the biggest outlay most people ever make, so even small differences in the interest rate on your loan can add up to the equivalent of a year's salary or more.

Take the example of a $400,000 home loan over 30 years. Canstar finance editor Justine Davies says the difference in repayments between the average variable rate and the minimum rate is approximately $78,000 - an extra year or two of retirement for most people.

If you constantly revolve a credit card debt, find a low rate card. Better still, start paying your card off in full each month or switch to a debit card.

How much super have you got?

Retirement may still be a long way off, but the sooner you take ownership of your super the better. The first step is to check your super account balance at least once a year when you get your annual statement.

"Sometimes companies make a mistake so make sure you are getting the right contributions," says Menschik.

SuperRatings research manager, Kirby Rappell says it is also important to check what investment option you are in and the returns you are getting.

"Compare the long-term performance over five, seven or 10 years against the relevant benchmark index (which should also be on your annual statement) to see how good your fund is," says Rappell. If it is consistently below average, then consider switching funds.

How much do you need to retire on?

It's easy to check your super balance, but harder to estimate how much you will need to live comfortably in retirement.

In New Zealand, the Financial Services Council, a lobby group for fund managers and insurers says: "A majority of New Zealanders consider they would be comfortable if their retirement income was about two times NZ Super. This requires savings of between $300,000 and $450,000 in your KiwiSaver account at retirement depending on how you invest after you retire."

That would mean ordinary folk saving 10 per cent of their income every year for 40 years. 

In Australia, a good place to start is the ASFA Retirement Standard. In June 2014 it estimated that a single person needed a lump sum of A$430,000 ($480,000) to provide a "comfortable" retirement income of A$42,433 a year. Couples needed A$510,000 for annual income of A$58,128.

Everyone's idea of a comfortable lifestyle is different. But as a general rule, Rappell suggests aiming for 60-70 per cent of your final income in retirement. If there is a gap between your retirement dream and reality, then the sooner you find that out and start topping up your savings the better.

CASE STUDY: Crunching numbers makes sense

Nothing brings family finances into focus more than a shift from two incomes to one, as Tim and Victoria Broady discovered. With a second baby on the way, Tim works full-time as a research officer while Victoria has taken time out from teaching to raise their family.

"Being a young family on a single income, we like to be aware of our financial position,'' Tim Broady says.

"So when we were both earning we set ourselves up so we could afford to spend a few years on one income.

"I get paid fortnightly, so I sit down every fortnight to keep track of our spending. When you notice you are spending consistently more than you were six months ago, you can look at what you can cut back on", says Broady.

Because they know how much they spend monthly and annually they are able to put aside cash some months to cover annual expenses like Christmas and car insurance. When they were earning a dual income the couple made extra mortgage repayments. This not only reduces the mortgage but it can be redrawn in an emergency.

"We are five years ahead on our mortgage. That's our largest ongoing expense so if something untoward happened we could suspend payments for five years. And when I rang to alter the repayments I applied for a (rate) reduction and they took a bit off," says Broady.

While Broady doesn't know the interest rate on their credit card it's academic, because they pay their bill in full each month. "We never pay interest on it," he says.


Building wealth is a numbers game.

By getting on top of the numbers that matter you can take control of your finances and boost your savings.

Here's what you need to do:

  • Work out your net income after tax so you know exactly how much you have to play with
  • Add up your total outgoings to see where your money is going. Credit card and bank statements are a good place to start.
  • Look for areas where you can cut back
  • Put savings aside each month to build a cash buffer and long-term wealth.
  • Get into the habit of doing this once a year and you can refer to the numbers from previous years to track your progress.
  • Sydney Morning Herald