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Six Steps to a Better Money Plan

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Understanding markets - six steps to a better money plan

How do you manage in challenging markets?

There are some simple steps that can help you gain control of your financial future. These steps are especially important during times of financial turbulence. They help you to remain calm and confident.

Six steps to a better money plan

Your spending habits make all the difference to your savings. Here are some steps to set you on the path to a more comfortable and secure future.

1. Be proactive

Procrastination is the greatest deterrent to achieving long term goals. Don’t put off advice and planning until tomorrow. When is the time ever right? Keep moving with your own financial plan. It’s all about time in markets, not timing. Time is our greatest ally. The more time you have to compound interest on your returns, the less cash you’ll need to contribute.

2. Don’t panic

Emotional decisions in highly volatile markets can cause us to make poor financial decisions. How you react in these volatile times will impact your long-term gains. Rational decisions are best.

History tells us that markets always recover over time. Indeed that is the point with superannuation—there is time to recover given average working lives of 30 – 40 years and retirements spanning more than 20 years.

Over the 35 years to June 2007, Australian superannuation has     delivered excellent real returns of about five per cent over and above inflation. Put another way, a dollar in a superannuation account ten years ago would have been worth $2.07 on average on 30 June 2008.

(Senator, The Hon Nick Sherry's address to Rice Warner Actuaries Workshop, 15 Oct 2008)

Start by talking to an expert. An Adviser will help you understand normal economic cycles.

Have a look at Vanguard Investments' market volatility chart to see how markets fluctuate and change over time.

It’s about the average returns over time. Expect ups and downs. Remember, history shows that over the longer term, it is the average return that will achieve long term goals.

3. Begin with an end in mind

Focus on your future; set retirement goals and have a plan.

Do you have a retirement goal and a strategy in place to achieve it? Do you know when you will have sufficient capital to provide you with enough income for your retirement? A plan will help you decide.

Sitting down and looking at what you want to do in the months and years ahead does not come naturally or easily but it is probably the most important step to take before you have the confidence that you are on track.

If you always do what you’ve always done, you’ll always get what you’ve always got.

Having goals gives you direction, purpose and an understanding of what average return you need over time.

4. Know where your money is going

Start managing your cash flow and create a priority spending plan. Plan to save about 20% of your gross earnings. Make sure your short, medium and long term goals are set so you allocate savings to your goals.

By assessing your spending in order of priority, you will discover new ways you can save without significant impact on your lifestyle.

Break your spending down to essential items, important items and luxury items.

If you want to make a difference, you need to recognise your spending weaknesses and be prepared to make changes to your spending habits.

An Adviser can help you decide how much money you need every month and how to monitor where your it is going.

5. Grow your money

Now you have ideas about how to save, you can look at ways to grow your money.

At this time in the market, while prices are falling, you have opportunities to buy more units at a cheaper price. In the future, these units will grow in value and so will your net wealth! This is called 'dollar cost averaging'.

6. Build your money skills

We spend many years being educated about how to earn money but when are we taught what to do with it, especially in times of market volatility? When were you taught how markets behave?

Do you remember when you were learning to drive? Your confidence grew with practise, knowledge and experience. Money management is the same. No one is born with money skills. The best way to understand how to make the most of your money is to tap into expert educators and advisers so that you can understand how markets work and the best way to manage within them.

Knowing how to choose an expert can be difficult but the Financial Planning Association provides a list of accredited experts. You can view this list on their website.

Money Solutions Pty Ltd* offers simple, clear and effective advice for all Australians. You can choose the service that best suits your needs.

Attend a coaching seminar—understand how to manage in volatile markets and make more of your super.

Speak to a money coach—ask as many questions as you like over the phone. We call this 'single issue advice'. We charge a fee for service. We do not accept commissions so you can trust our advice is given with your best interest in mind.

Visit a Financial Adviser—meet face to face or speak with a Financial Adviser over the phone. Get advice that is right for you and simple to understand.

Call: 1800 046 144

Taking control of your financial future is as simple as making up your mind to do something now.

* AFSL 258145